FREE PRICING MAY NOT INSURE PREMIUM CUT

While it is raining discounts under the free-pricing regime with insurers bending backwards to offer cheaper policies, not all may be lucky. Carowners with an adverse claims record may not only be denied discounts but also have to cough up higher premium.The scope for discounts in a portfolio like fire is greater because so far prices were artificially high. But the margins on motor are not high, a source said. In the motor insurance portfolio, the ticket sizes are small, therefore the quantum of discounts cannot be huge. Typically, insurers enjoy a margin of only 7-8% on a motor policy, after taking into account claims up to 60%, administrative cost of 20% and processing charges of 10%. If there is a 20% discount, all other costs remaining constant, the company will already be in the red. This kind of pricing will not be sustainable in the long term.“Better risk profiles will get greater discounts. Ultimately, rules built into underwriting practices will determine discounts or a hike in the premium depending on claims ratios,” an official at a large private insurance company said.“A lot depends whether companies are driven by scientific underwriting or are going for market share. New players are expected to be aggressive and build on volumes in the absence of claims data on customers,” an industry expert said.The general insurance industry was ushered into free-pricing regime from January 1. From April, insurers will also have the flexibility to change the terms of the policy.Given that the price factor will be a determinant only till April, what are the basic features that one must look for? Insurers say that while buying motor insurance, customers must look at features such as after sales service, number of locations where cashless transactions are offered, surveyor network, a 24-hour helpline and additional warranties, among others.“If there is an accident over a weekend, does the insurance company send a surveyor immediately, or the customer has to wait till a Monday? Or for that matter how soon do claims get processed? How much time does a customer have to spend to recover his claim? What price is the customer willing to pay for convenience?” an official with a private insurance firm said.“It makes sense to pay a small additional amount and subscribe to a number of features than save that small amount and have trouble in settling claims later,” said Pavanjit Singh Dhingra of Prudent Insurance Brokers – www.economictimes.com