The Hindu Business Line : IRDA chief urges industry to build credible database

STATING that detariffing of the general insurance industry should take place in phases, the Insurance Regulatory and Development Authority (IRDA) has preferred to complete the exercise by minimising the damage and disruption to the industry and its stakeholders.

Towards this, the IRDA Chairman, Mr C.S. Rao, wants the industry to build a reliable and credible database to base its pricing on.

Such a database is also required for the industry to establish to the outside world its cost structure and efficiency in an increasingly competitive world, the IRDA Chairman said in a communiqué to industry stakeholders.

The industry has not maintained data that would be the acceptable basis of scientific underwriting.

According him, the database was needed not only for actuarial work for rate making but to study trends and share them with customers so that the claims of the industry was communicated transparently to them.

"The outcome of such information and awareness should be reduced incidence of risk in the economy, which would pave the way to better pricing of insurance. Detariffing would largely depend on how quickly we acquire the database."

In the existing tariff regime, the general insurance industry is bleeding in areas such as motor third-party liability, where the pricing is significantly low and claims payout substantially high.

According to the figures available with IRDA, the claims ratio in motor third-party liability is as high as 200-250 per cent. This segment accounted for Rs 2,000 crore of the Rs 16,000 crore of total non-life insurance premiums last fiscal.

In areas such as Rs 3,200 crore fire insurance segment, where the claims ratio is reasonably low at around 30 per cent, the industry finds itself highly comfortable.

As per the IRDA figures, the general insurance industry currently has an overall claims ratio of around 70 per cent.

With management costs of around 36 per cent, the industry has been finding it difficult to avoid losses while strictly adhering to the statutory business of motor insurance.

Welcoming the idea of a database, the actuary sector has submitted to the regulator that the experience of developed nations was not encouraging in compiling a common national data warehouse owing to issues such as individual insurer's proprietary rights over the data.

They preferred compilation of own data banks by the individual insurers in the place of a common national data warehouse.

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