As previously reported, the Indian general insurance market is in the midst of a transition from a tariff based regime to a more market driven system. To this end, the Indian insurance market regulator (IRDA) announced in December 2006 that rates for tariffed products would be freed as of 1 January 2007.

Under the original plan, the Tariff Advisory Committee mandated policy wordings (insuring clause, terms, conditions, clauses, warranties, etc) would have to be used until 31st March 2008. After the date, the intention was for policy wordings to be freed as well.

Following de-tariffication, the first steep premium rises were seen in third party rates for motor policies. It was reported that transporters were being asked to pay 126-150% more for third party cover. Transporters threatened a nationwide strike and, on 23 January 2007, the IRDA stepped in to regulate the motor rates that could be charged by Insurers with retrospective effect from the date that rates were freed - 1 January 2007.

In other market lines, premiums have seen a marked decline. Firm statistics are very hard to obtain, but market feeling following the renewal season that coincided with the Indian financial year end on 31st March is that rates for middle to larger customers have come under severe pressure due to a combination of reasons, including Insurers anxious to gain market share in a new market; brokers aggressively driving down rates (and their own commissions) to retain clients and Insureds showing a remarkable willingness to move business to the lowest bidder. In a tariff market with each Insurer obliged to sell the same product, the only differential that an Insured will focus on and negotiate is price, and that is what has happened.

As mentioned earlier, 31st March 2008 was to have been when the policy wordings would also be de-tariffed. However, the IRDA has announced that it is pushing back this date. In a letter dated 26th March 2008 to all General Insurers, the IRDA decided that pending examination of common market wordings proposed by General Insurance Council, Insurers shall continue to use the coverage, terms & conditions, wordings, warranties, clauses and endorsements of the erstwhile tariff classes of insurance covers until further orders.

There was a view amongst some that the General Insurance Council (GIC) common wording contradicted the desire for a de-tariffed market, and was not needed at all. Others felt that, if there was a need for a common wording, then the market should continue with the tariff wording which is at least familiar.

A third group expressed the view that a common wording should not be rushed. It appears that the IRDA shares that view. The issue remains, however, that the market will be following the tariff wordings for now for an indeterminate period. The IRDA has given no other explanation for the postponement of de-tariffication beyond that quoted above, and no indication of how long the review of the GIC wording will take.

One of the unintended effects of partial de-tariffication, leaving the policy wordings fixed but allowing free pricing, seems to be the pressure on premiums that has characterised this latest renewal season. It will be interesting to see what the effect will be if partial de-tariffication continues through another renewal season.

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