Mumbai, Aug. 3 (PTI): Taking a cue from the banking sector, general insurers are planning to introduce a “base rate” kind of system to price premium rates. The move is expected to arrest the rise in underwriting losses after de-tariffication.
Industry body General Insurance Council discussed the idea last month at a meeting, which was attended by the heads of New India Assurance, GIC Re, ICICI Lombard, HDFC Ergo and Tata AIG General Insurance.
“There is a feeling that premium rates in the domestic market are on the lower side. Insurers have been discussing for sometime how to ensure that the rates are at the right level and there is some semblance of uniformity.
“At the July meeting, we had discussed how to bring the rates at the right level across the sectors, including health, motor and fire & engineering,” New India Assurance chairman and managing director G. Srinivasan said.
The idea is to sensitise insurers and ensure that the premium rates are in line with the risks involved, he said, adding that the meeting also discussed how the underwriters could ensure the correct premium rate.
“The Insurance Information Bureau is already trying to do it in the fire segment. On the similar lines, we want to have some kind of technical rates in the industry, falling on the lines of the base rate in the banking industry, which we could consider while fixing up the rates,” he added.
De-tariffication is the removal of pricing regulations on tariffs set by a regulatory body.
It allows an industry to price its goods or services at market value, as regulation is discontinued to promote market equilibrium.
Earlier, sectoral regulator Insurance Regulatory and Development Authority (IRDA) used to control the premium rates.
Premium rates in the general insurance industry had hit rock bottom since de-tariffication in 2007.
Even in the motor segment, while self damage has been de-tariffed, third-party premium is the only thing controlled by the IRDA.
Despite giving huge discounts to customers because of stiff competition, general insurers are not able to collect the right amount of premium.
As a result, claims have been piling up to unprecedented levels, resulting in huge underwriting losses.
At New India Assurance, the claims ratio under motor third-party segment stands at 130 per cent, Srinivasan said.
“We are in discussions to standardise best practices while underwriting property and health risks. This is to ensure that the risk is properly evaluated by the general insurers while giving the premium quotations,” General Insurance Council secretary general R. Chandrasekaran said, adding that the idea is to sensitise underwriters to evaluate the risks properly.