Companies in the over Rs 25,000 crore market are now free to set their set their own prices for their policies.
In free pricing regime, firms must also ensure they do not undercut each other to unprofitability
KOLKATA: With the passing of the year, the general insurance industry has entered into a detariff regime. Companies in the over Rs 25,000 crore market are now free to set their set their own prices for their policies.
From this year, they are also free to change their “market wordings” which essentially means that all companies can come up with any product at any price. The customer can avail of different kinds of covers in auto, fire and engineering, health and miscellaneous products.
It’s now time for general insurance companies to tread carefully on two major issues. The first is service standards, with price no longer being the only differentiator to woo customers and clients.
A self-imposed market conduct is also likely within the next few months, to ensure that the companies do not undercut each other to unrealistic, low prices, just for the sake of gaining market share.
It was with the beginning of 2007 that the first phase of freeing market rates or a detariff regime was introduced. General insurers were allowed to change the premiums they charged, and the 12 months since have witnessed intense competition, with significant undercutting of rates and the regulator Irda bringing in a cap on discounting of policies.
So, would the market see a bloodbath with rate cuts galore in 2008?
KN Bhandari, general secretary, General Insurance Council, the forum for all insurance companies, told DNA Money, “I think the rates have bottomed out and there would not be much of a downside now. India is the lowest cost insurance market and with further rate cuts, it would be difficult to get reinsurance support”.
“Service will be the key differentiator like any other service industry like telecom, hospitality, healthcare, aviation. Emphasis would definitely shift from price to service standards. The Indian general insurance industry has registered the highest growth rate among other countries globally”, Bhandari said.
A series of meetings on ensuring a self-regulatory mechanism in the general insurance market is slated over the next few weeks. The meetings will discuss all key issues on product pricing to address that no unhealthy practices or rate wars plague the industry.
Market estimates suggest that the general insurance industry is set to grow to Rs 50,000 crore in three years. The industry has grown from Rs 10,000 crore to Rs 25,000 crore in six years’ time.
g_nandini@dnamoney.net
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