DE-TARIFFING PROGRAMME IN NON-LIFE INSURANCE

PRODUCT APPROVAL FILE & USE PROCEDURE

By PC James ED, IRDA

NEED FOR REGULATORY OVERSIGHT

Balance bet. interests of insurers, insured and other members of the public Ensure fair terms Look into the adequacy of disclosures & transparency Compliance with legal requirements

RATING WATCH

No excessive or unfairly discriminatory rates Monitor inadequacy/ deficiency in rates Compliance with Actuarial oversight Analysis of costs through experience data

NEED TO REVIEW EXISTING FILE & USE REGULATIONS 2001

Removal of tariffs Need for more comprehensive approach Need to enforce more self-regulatory & governance norms

NEED FOR STANDARDISATION OF POLICIES/TERMS

Helps

Consumer Insurer Coinsurer Reinsurer Intermediary Third Parties Need for model policy/clauses at company level/industry level.

MODEL INSURANCE COVERS CAN BE IMPOSED BY

Legislation Regulation Self-regulation An effect of standard cover - Derogation i.e., if less than standard cover draw insureds attention

ISSUE OF TIED INSURANCE

Tied, ancillary, undisclosed insurance Goods/services purchased insured charged but not informed To be informed Cost of insurance to be disclosed Problem of excessive commissions to be avoided

REFUSAL OF COVER ISSUES

Non-acceptance of proposal Renew on special difficult, impossible terms Cancellation of cover Not renew existing cover Disclose reasons except when an informant/employee is at risk

CANCELLATION ISSUES

Types

- automatic cancellation - cancellation without notice - cancellation immediately on notice - 14 day notice period - no allowance of misdirection of notice/delay in post

GIVE TIME/REASONS

(Contd)

Effect of cancellation on further insurance Cancellation owing to premium deficiency Long term cover annual/installment cover facility automatic cancellation on failure to pay premium Cancellation due to non-insurability issues Avoidance of a cancellation clause in policy

RENEWAL ISSUES

Renewal notice sent not sent not invited with reasons in writing Types of renewal clauses - non - cancellable - guaranteed renewals - non-renewable eg. Max. age - optionally renewable

RATING ISSUES

The Rate should be : Adequate - data driven - competitive - justifiable Not unfairly discriminatory - customer equity - reg. compliant Not excessive Simple to administer

UNDER INSURANCE FOR PERSONAL INSURANCES

First loss concept Indexation, advertising, value calculators 15 to 20% relaxation Minimum Premium whether higher S.I is possible, but not made clear

DIFFERENTIATION BETWEEN RISKS

Red-lining eg. inner city, low income areas Social implications - those who can least afford excluded - unable to finance purchase Differentiation Race Sex Age

FILE & USE GUIDELINES (Proposed)

Where product is governed by mandatory rates, terms, conditions, eg., Terrorism risk strict compliance required. Products filed under earlier guidelines need not be re-filed. Unless changes are effected Contd..

Contd

No new product to be offered unless filed and IRDA has not raised query/objection within 30 days, and IRDA confirms satisfaction If at any time even after File & Use is over, the product is not found appropriate or the terms not fair, IRDA may call for answers to the concerns, and replies if not satisfactory, may require suspension of the sale, and remodification Contd..

Contd

IRDA may require insurer to justify rates, terms, conditions Any individually rated risk not filed shall be now filed, before offering to the client, as new or renewal

RESPONSIBILITY

Documents shall be filed only under the signature of the Principal Officer Principal Officer will remain responsible to comply with guidelines A Compliance Officer to ensure compliance Quarterly report to be submitted by Compliance Officer

CLASSIFICATION OF PRODUCTS
1. 2. 3.

4. 5.

Internal tariff rated products Products packaged for individual clients Covers determined by reference to international markets Individual experience rated products Exposure rated products

BASIC REQUIREMENTS FOR DESIGN OF PRODUCTS

Underwriting/new product policy of the company to be placed before the Board Delegation of authority to management must be subject to a clearly defined underwriting policy as laid down by the Board Copy of this policy to be filed with IRDA

DRAFT FILE & USE PROCEDURES

New Product Policy to cover : 1. Underwriting profit expectation 2. Whether each product to stand on its own or cross-subsidy among products sold to one client acceptable 3. Whether willing to write at a loss to develop market share Contd.

DRAFT FILE & USE PROCEDURES (contd.)

4.

5.

6. 7.

Margins in pricing for acquisition costs, expenses, reserves and profit List of products that fall into each of the earlier mentioned 5 categories Delegation of underwriting authority Internal underwriting audit machinery

STATISTICAL SUPPORT

The Appointed Actuary and underwriters to determine data requirement, compilation and analysis requirements Certificate of the Actuary to accompany every filing The periodicity of review of emerging statistics to be stated

DOCUMENTS REQUIRED TO BE FILED

From From From From ABCDparticulars of the product certificate of Principal Officer certificate of Appointed Actuary certificate by Lawyer

Contd.

DOCUMENTS REQUIRED TO BE FILED (contd.)

Copies of prospectus and other sales literature Copy of the proposal form Copy of the Policy form; standard endorsements Copy of the underwriting Manual

DETARIFF ISSUES

statement to be filed highlighting variations where rate variation is more than 20% the basis to be justified by statistical evidence after 1 year 20% variation to be justified from published market level experience Changes in policy wording to be filed Products for individual clients to be justified

PRACTICES IN OTHER MARKETS

Product Approval Methods - File & Use - Use & File - Prior Approval

DOCUMENTS TO THE CUSTOMER BEFORE/AFTER

Brochure Prospectus Proposal Cover Note Policy Endorsements What is the penalty for non-delivery of policy

Before

After

LEGIBILITY ILLEGIBILITY ISSUES

In certain markets print sizes have been prescribed Comprehensibility/Simple English Regulation based on use of Flesch tests

OTHER CONSUMER ISSUES

Clauses/conditions Pre-existing Portability, etc English/vernacular Other friendly features Grievance Redressal