IRDA has imposed limits the discounts the players can offer on insurance premium across risk categories, both individual and class.
KOLKATA: Public sector non-life insurance companies are sulking at the caps on discounts offered on premium, imposed by the insurance regulator recently. They feel the move restricts competition in a free price market.
Although the general insurance market was thrown open to a detariff regime from January 2007, the Insurance Regulatory and Development Authority (IRDA) has imposed limits the discounts the players can offer on insurance premium across risk categories, both individual and class.
“There is a concern and we are worried with the cap as this takes us back to the tariff regime, when there were restrictions. We are in the process of taking up this issue at the General Insurers’ (Public) Sector Association and may be refer to the IRDA,” M Ramadoss, chairman, Oriental Insurance Company told DNA Money.
According to the recent restriction, insurers are not permitted to offer discounts on premium rates lower than 56.25% of the original tariff for class risks, which are smaller risks like household, shops and establishments etc. On the other hand, a discount on premium up to 48.75% could be offered on individual or larger risks. Apparently, there were complaints on aggressive discounting to the level of 65-70%, according to the regulator.
In fact, most PSU majors had brought renewal premiums down by at least 40-50% in their aggressive pitch to recover market share lost to the private sector. The discounting was particularly intense in fire and engineering business, where the claims ratios have been low. The first three months of the detariff period show that the bulk of the growth in premiums has been in the engineering sector.
According to officials of National Insurance Company, the problems of restriction had its impact on the share of business, particularly relating to fire insurance. “In case this restriction of the maximum discount is not lifted, we will have to wait till a free product regime is introduced by the year-end. It will be easier to play on the volumes of various kinds of general insurance policies by then,” they said.
Currently, the detariff regime only permits insurers to play on the prices and not the terms and conditions of a policy. Selling new products will be permitted only in April 2008, but industry sources say this may be introduced much earlier.
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