The Hindu Business Line : IRDA for simpler wording of insurance policy

The Insurance Regulatory and Development Authority (IRDA) has stipulated that all the product literature should be in simple language and that all insurance companies should follow the same sequence of presentation while registering their products with IRDA — what the industry calls `file and use'.

This forms part of the draft guidelines for the general insurance industry while launching new products. This will come into force on September 30. The issue assumes significance in the context of detariffing of fire policies, which is effective January 1, 2007.

However, insurers have been asked not to vary the scope of coverage, terms and conditions or the wordings of covers that are under currently under price regulation (tariff) until March 31, 2008.

As per the draft guidelines, the design and rating of product must be on sound and prudent underwriting basis. Insurers have also been asked to follow similar wordings for describing the same cover or same requirement across all their products such as clauses on renewal of insurance, due diligence clause, cancellation clause and so on.

The IRDA also says that `the product should be genuinely an insurance of an insurable risk with a real risk transfer'. The pricing of products should be based on support of appropriate data and technical justification and margins built into rates should be consistent with the experience of the insurer in respect of commission, expenses of management, contingencies and profit.

Caution

Insurance companies have been asked to take necessary steps to ensure that competition does not lead to unprincipled rate cutting and other improper underwriting practices.

With respect to the filing of products, once a product has been filed, the regulator will not agree to frequent changes without justification.

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