The Hindu Business Line : Change in functioning of IRDA's tariff advisory panel on cards

AS a prelude to complete deregulation of the general insurance industry, the Tariff Advisory Committee (TAC) of the Insurance Regulatory and Development Authority (IRDA) is likely to be converted into a Technical Advisory Committee.

Sources said that the technical body, replacing the original TAC, was tentatively slated to become operational with effect from the beginning of the next financial year, April 2006-07.

They said suitable amendments to the Insurance Act of 1938 were being pushed forward for changing TAC's nomenclature and functions.

The amendments were originally expected to have been tabled during the monsoon session of Parliament. But they are now likely to be made only during the winter session, the sources added.

Only the abbreviations would remain unchanged. The functions however would be completely different. The TAC in its present form fixes tariffs for various risk products by the non-life insurance companies. The general insurance industry was expected to conform to these norms in pricing risk covers.

The TAC's replacement was expected to function as a recommendatory body for tariffs. This would imply that the TAC in its new incarnation would only recommend tariffs/premiums for various risk products. While the recommendations would not be binding they were expected to function as a floor.

In addition, the sources said the regulator was also working on a two-stage deregulation of tariffs to coincide with the changes in the TAC. Currently, 65 per cent of the domestic insurance market is fully regulated. The detariffed regime presently extends only to marine and miscellaneous insurance that includes personal lines, where a free pricing regime is already in effect.

In addition mega risks beyond probably maximum loss (PML) of Rs 1,054 crore was also deregulated, allowing domestic insurers to fix tariffs on the basis of the international reinsurance markets.

But an expert committee of the IRDA has recommended that risk covers beyond a PML of Rs 25 crore be deregulated in the first phase towards a free pricing regime. The figure was arrived because it is this amount that is currently the prescribed retention limit on the basis of a risk pool.

If the IRDA has its way, this proposal was also likely to take effect from the next financial year as the first stage of deregulation. Based on this experience, the second phase of detariffing would be taken up subsequently, the sources said.

Domestic non-life insurers, the sources said, would then have built up a substantial database for quoting tariffs

The sources said that under Section 26 of the IRDA Act of 1999, the regulator had powers to go ahead with the deregulation on its own. However, it had chosen a more cautious approach of seeking legislative sanction for moving ahead with the reforms in the industry.

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