In a bid to check the rampant undercutting and jacking up of of premiums arbitrarily by the domestic general insurers to corner business through unhealthy competition, the insurance regulator IRDAI,on Monday, in its proposed General Insurance Products Regulations, 2021, among other provisions, has ruled that it will require an insurer to justify the rates, terms and conditions of insurance cover offered to a particular client or to a class of clients or for a particular product or add-on, within the time specified.

A mere statement that the risk is rated on merits will not be acceptable unless the quantification of the merits can be objectively demonstrated to the satisfaction of the IRDAI, said the revamped regulations that will come into force on the date of their publication in the Official Gazette of Government of India, said IRDAI's circular signed by its chairman Subhash C Khuntia.

The elaborate proposed regulations provide the basic framework and reflect the fundamental principles to be followed in respect of product design and pricing, said the IRDAI.

The set of ravamped regulations have clarified that insurers offering premium rates which are not filed with the IRDAI, discounts in premiums not specified in the filing, discount in the premium without specific approval for the same from the product management committee(PMC) and offer enhanced benefits on the products without charging any premiums will be considered to be violations of these regulations, .

Analysts point out that, such regulations to check undercutting, that has been happening since detariffing was launched in the general insurance industry in 2007 were overdue. Such cut throat unethical competition was generating huge underwriting losses in the domestic general insurance indstry which was not good for the finacial viabilities of the palyers who are saddledwith underwriting losses and even net losses even after so many years of operations.     

“If it is found at any point of time that any product or add –on being offered by an insurer is not appropriate for any reason or does not carry rates, terms and conditions as filed or the product related documents used with the product and/or add–on are not in compliance with the original filing, the IRDAI may express its concerns and call upon the Insurer to address the same within the time specified’', said the IRDAI.

‘Accoring to the IRDAI,The pricing of the product or add-on should aim at ensuring that the product or add-on is viable, generating a reasonable margin without any cross subsidization from any other product or add-on’.

The pricing approach shall be based on sound actuarial principles with supportive data. The discounts or loadings offered should be on objective basis with appropriate justifications and duly certified by the appointed actuary, said the IRDAI..

Differential rates shall not be applied to similar risks.Where the proposed schedule of rates is derived from an existing schedule of rates, there should be adequate statistical information on the claims experience and actuarial justification backing the current schedule of rates,explained the insurnace regulator.

Further, the new regulation outline that the appointed actuary periodically review the product performance of all products or add on covers in a structured manner and present it to the PMC at least once a year along with his / her recommendations. The product performance report has to contain data of premium and claims for each product and add on along with appointed actuary’s recommendations,

PMC observations and board observations has to be be sent to IRDAI by 30th June of every year for the preceding financial year.
The analysis shall be carried out to ascertain if the assumptions used while pricing the product are valid after gaining the product experience, directed the IRDAI.

Where a risk is co-insured, the primary responsibility to comply with these regulations will  rest with the lead co-insurer.

Every insurer has to set up a PMC, composed of its senior level officials from departments like Underwriting, Marketing, Actuarial, Claims, which will submit reports independently to the insurer and assist insurer in effective control over the risks posed, in particular, by insurance products
or add-ons being marketed or offered by the insurer.

Stakeholders are requested to give their comments / suggestions, on the proposed regulations, through e-mail to nl-products@irdai.gov.in with a copy to A. Rama Sudheer, manager (ramasudheer@irdai.gov.in) before 26th April, 2021.