The Hindu Business Line : IRDA working out schedule for de-tariffing motor, fire cover

THE Insurance Regulatory and Development Authority (IRDA) is working out a schedule for de-tarrifing or free-pricing of motor and fire covers, said Mr C.S. Rao, Chairman, IRDA, here today.

At present, insurance companies, selling policies for motor and fire insurance, have to adhere to a pre-determined premium structure.

The insurance industry has been demanding the detarrifing of these portfolios, but the insurance regulator has been cautious to prevent any largescale destabilisation of the market.

Speaking at the conference of the Federation of Afro-Asian Insurers and Reinsurers, Mr Rao said that the detarrifing would be carried out in a phased way where the schedule will require the insurance companies to pursue distinct actions and cut-off dates would be specified for each of the actions.

However, he did not clarify what these actions would be.

The IRDA chairman also indicated that insurance companies would be given greater flexibility in terms of their investment decisions.

At present, the Insurance Act of 1938 governs the approved vehicles of investment for insurance companies.

Mr Rao said that the Act would be modified as per the responses and the consensus generated regarding the amendments suggested by the K.P. Narasimhan committee.

The report of the committee would be released for public viewing.

Currently, life insurance companies have to invest 25 per cent of their funds in the government papers and another 25 per cent in other approved securities.

Fifteen per cent of investment has to be in the infrastructure sector and social sector.

The balance 35 per cent is available to the companies to invest in the capital markets.

However, both life and non-life companies, are not permitted to invest more than 15 per cent of the total capital employed in equity shares and debentures.

The insurance industry has been asking for greater flexibility and investment in vehicles like derivatives has been one of their demands.

The IRDA has also issued a circular to insurance companies to create more flexible health insurance products with fewer restrictive clauses like pre-existing diseases, said Mr Rao.

He also expressed concern over issues such as disclosure norms of companies regarding the sale of ULIPs, the rebates given to agents and brokers and improper underwriting practices where the risk is not commensurate with the premium.

The liberalisation of the insurance sector in 2000 was however hailed by Mr Rao illustrating the fact that the insurance density had increased to $16 from $10 per capita.

Growth in the non-life sector had improved from six to 14 per cent in the post-liberalisation period while the growth in life insurance had increased from 25 per cent to 35 per cent, he added.

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