The Hindu Business Line : Free pricing may lead to turbulence initially: IRDA

As insurance companies inch towards the free pricing regime coming into effect from January 1, 2007, the Insurance Regulatory and Development Authority (IRDA) has a word of caution - learn from global experiences of turbulence in similar conditions.

Addressing a CII seminar on `Insurance for Infrastructure' here on Friday, Mr C.S. Rao, Chairman of IRDA, warned that the regulator would be forced to step in at the first sign of turbulence to take corrective action.

"We want to avoid turbulence. We would like to ensure a smooth transition to the detariffied regime. Because, a country of this size and at this stage of development could not afford too much of turbulence in the economic sphere," he said.

Advice to customers

He advised the consumers to look at the new regime as an opportunity to get their risk covered at an appropriate price and by an appropriate agency.

Touchstone

Mr Rao felt that the touchstone for selecting an insurer would be his ability to provide service. "Look at his track record and his ability in servicing," he said.

Yet another important parameter was how the insurer was covering his own risk. "Look at the kind of reinsurance he is taking," he said.

Mr Rao said the real competition would come in when a large number of players offer different policies for different sections.

He also felt that detariffication would open up huge opportunities waiting to be tapped in the healthcare segment.

Growth may drop

Mr Dalip Verma, Managing Director of Tata AIG General Insurance Company. said that in the initial phase, free pricing regime could result in a decline in growth. Citing the examples of Japan, Korea and Ireland, he said in the first few years the market witnessed a decline of 20 per cent. Only after third year that growth resumed.

Mr Verma felt that equity exposure could well pose a risk for insurance companies. Citing the Asian example, he said 18 Malaysian companies turned insolvent with just 30 per cent exposure during the market collapse.

"There are good years in stock markets. But, then, sometimes good years don't last long," he said.

"You already take risk every time you underwrite. I don't think insurance companies should further risk by speculating," he said.

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