Given the tough conditions at 1/1 renewals and shortage of proportional capacity that is being witnessed elsewhere for India reinsurers may insist on more retention and trend will continue for non proportional arrangements . At the same time as the non IIB rates are expected to drop 30-40 pct with corresponding increase of loss ratios, the proprtional treaty terms may witness significant reduction of commission levels and lowering of event limits . Insurers will have to discuss a lot on their own rating tables with reinsurers and the viability of same there of to secure proprtional capacity, said an official of a foreign reinsurance branch (FRB) in India
Hyderabad:
In a bid to bring down the cost of insurance for India Inc, the insurance regulator IRDAI on Tuesday has issued directives asking the non-life insurers and reinsurers including foreign reinsurance branches(FRBs) in India to ensure that IIB(Insurance Information Bureau) published broad-occupancy market average burning costs rates for Fire and Engineering risks are not used as as minimum rates within `Reinsurance Treaty Agreements’ applying to the Indian market for the risks commencing on and after 1st April 2023.
The IRDAI has observed that Reinsurance Treaty Agreements in many instances include, as a precondition or prescription, the requirement to apply the IIB published broad-occupancy market average burning costs, as minimum risk rates, said the regulator.
Such prescription by any reinsurer that effectively creates / reinstates a market (price) tariff is not in line with the de-tariffed pricing regime currently in vogue and would distort the level playing field intended to be provided by the IRDAI, explained the regulator.
Also,the said `Treaty Agreement’ provisions do not acknowledge individual risk quality or
accident / loss history and effectively discourage risk management along with the loss
prevention/ mitigation investments of insurance buyers, added the regulator.
The IRDA acknowledges that every reinsurer should have the freedom to price its
reinsurance product and freely negotiate terms of trade with its counterparties i.e.
‘Cedants’ (Insurers).However, terms of trade shall not be an impediment on the freedom of the ‘Cedant’ (Insurer) to freely compete, negotiate, price and assume risks via its own contracts of insurance with its clients i.e. ‘insurance buyers’, said the regulator.
“I’m not sure this is a good idea at all. We could have some very bad underwriting by insurers and many reinsurers won’t cover and so it will all fall on state wned GIC Re because everyone will complain that no one is supporting their business,”said an official of a FRB.
Given the tough conditions at 1/1 renewals and shortage of proportional capacity that is being witnessed elsewhere for India reinsurers may insist on more retention and trend will continue for non proportional arrangements . At the same time as the non IIB rates are expected to drop 30-40 pct with corresponding increase of loss ratios, the proprtional treaty terms may witness significant reduction of commission levels and lowering of event limits . Insurers will have to discuss a lot on their own rating tables with reinsurers and the viability of same there of to secure proprtional capacity, said official of another FRB.
With market feedback, the IRDAI had earlier (12th May, 2022) clarified that the IIB published only broad-occupancy market average burning costs (commonly now referred to as “IIB rates”) for Fire and Allied perils and these were not to be interpreted/ operated as a minimum mandated rate.
The IRDAI has been working on reforms in the non-life insurance sector to enable
ease of business from the viewpoint of Insurers as also to enable choice for insurance
buyers/ consumers and create a free-market regime that fosters prudent risk
management and loss control.
Towards this, the regulator had progressively denotified various tariffs including the Fire and Engineering Tariffs prices set up by the erstwhile Tariff Advisory Committee, said the IRDAI.