INSURANCE POLICIES DISCOUNTING REBATE CAP MAY FACE RECALL

The General Insurance Council (GIC), a self-regulatory organisation of the general insurance industry, and the insurance regulator have said the policies that have not complied with the limits on discounts offered may have to be recalled. While the insurance regulator had stipulated caps on discounts that could be made available to consumers, insurance companies offered much higher discounts than those prescribed. It is not clear, industry sources said, how policies that have been issued can be recalled. At a GIC meeting earlier this month, it is understood that all CEOs agreed to comply with the guidelines with immediate effect. “All such cases where we have allowed higher discounts, we may need to recall our quotes as instructed by the Irda officials in the aforesaid meeting,” a letter from an underwriting head at an insurance company to the marketing department stated. After slashing premium by as much as 70% over the original rates in the free-pricing regime that kicked off earlier this year, insurers have now been instructed by the Insurance Regulatory & Development Authority (Irda) to abide by the caps on discounts specified by it. Pending approval from Irda for revised rates for new policies, all firms have been advised not to allow discounts in excess of 51.25% in respect of individually-rated risks and 43.25% in respect of class-rated risks as per guidelines. “GIC is a self-regulatory organisation though it has representation from Irda. While there is no communiqué from Irda to the industry at this stage, the guidelines issued earlier in the year on capping discounts stands,” Irda chairman C S Rao said. GIC secretary-general K N Bhandari said, “There have been complaints about the violation of Irda-prescribed caps on discounts. At a meeting earlier this month, insurance companies said Irda-prescribed guidelines will be complied with. While it is not mandatory for companies to recall quotes where higher discounts were stated, they are free to do so.” Violations on the prescribed cap on discounts have been witnessed in large accounts while insuring industrial risks since the groups could have considerable bargaining power and can shop for the lowest premium, a source said. Prudent Insurance Brokers V-P Pavanjit Singh Dhingra said, “Driven by the fear that prices lower than those mandated by Irda may not be processed, customers are now insisting they should not be offered discounts more than the prescribed limits imposed by the regulator. Customers are getting cautious and are willing to pay the right amount to ensure that all risks are covered.” On January 1, general insurers were given the freedom to price their policies. In a bid to control a price war in the market, Irda had capped the discounts that insurers could offer policyholders in the free-pricing regime, reducing chances of undercutting. A six-month lock-in period was brought in to prevent companies from changing premium rates frequently. Irda monitors every insurance company once in two months. If companies do not follow prudent underwriting standards, they run the risk of falling short of solvency margin requirements. Already, the regulator is keeping tabs on underwriting practices of companies before allowing them complete free-pricing in April 2008 — when they will be allowed greater leeway in product innovation, apart from competing on price. The general insurance industry is pegged at Rs 22,000 crore – www.economictimes.com