Allowing general insurers to extend appropriate discounts, IRDAI has explained that “The objective of Insurance Information Bureau of India (IIBI) publishing details of “Burning Costs” occupancy-wise is only to give information to insurers with regard to industry-level experience for appropriate use while rating risks. By no means does this even remotely imply that this is a ‘mandated minimum rate”
Hyderabad:
Reversing its earlier stand, which may bring down the insurance cost of India Inc, the insurance regulator IRDAI on Thursday has clarified that the “Burning Cost’ can’t be quoted by general insurers as a ‘mandated minimum rate’ to charge premiums to customers.
The IRDAI has been receiving several complaints from policyholders, both directly and through various platforms such as industry associations, that insurers are referring to the `Burning Cost’ as a ‘mandated minimum rate’, said the IRDAI on Thursday,
In insurance parlance, Burning Cost’ is defined as the ratio of incurred losses within a specified amount in excess of the theoretical amount of premium it would take only to cover losses.
A few years ago, the IRDAI, in a bid to bring in underwriting discipline and checking rampant underpricing leading to large underwriting losses in the Indian general insurance industry, had asked the general insurers to stick to the `Burning Cost’ as prepared by IIBI to price any products.
Accordingly, in FY2019-20, state owned GIC Re and other reinsurers, foreign reinsurance branches(FRBs), had increased its fire premium on the basis of higher “Burning Cost” which in turn was passed on to the India Inc by the general insurers.
However, allowing general insurers to extend appropriate discounts once again, IRDAI has explained that “The objective of Insurance Information Bureau of India (IIBI) publishing details of “Burning Costs” occupancy-wise is only to give information to insurers with regard to industry-level experience for appropriate use while rating risks. By no means does this even remotely imply that this is a ‘mandated minimum rate.”
It is expected of insurers to consider all applicable risk factors for rating a risk and give appropriate discounts or charge loading as warranted –the rating approach shall be part of the technical note filed under the Use and File/File and Use procedure as the case may be, said the IRDAI.
The new notification by the IRDAI on the role of `Burning Cost’ will now help insurers to lower the premiums. Whether it will lead to undercutting of prices leading to cut -throat competition and underwriting losses, have to be seen,” said industry analysts.
IIBI has been periodically publishing the industry Burning Cost for Fire perils (FLEXA). All insurers have been informed that the purpose of this is to give an indication to insurers of the industry Burning Cost for various occupancies, for appropriate use in the matter of pricing the various risks.