De Tariffing

In General Insurance

Abhishek Gupta 49/07

Flow of Presentation  What

is De-tariffing  Before and after de-tariff regime  Advantages and Fears  De-tariffing to Insurers PROBLEMS AND PROSPECTS :  DETARIFFING TO INSURED –PROBLEMS AND PROSPECTS :  SWOT  Role of TAC  Conclusion

What is de-tariffing  Tariff

means “ Rigidity”.  Not only rates are fixed, even terms ,conditions and wording of policies are to be as laid down in tariff.  “Detariffing” is the pricing of Insurance policies by individual insurance company’s concerned , to decide and offer ,based on their analysis and perception of risk. In short, making all insurers free to decide the premium rates based on their in-house guidelines of pricing.

 Tariff

Advisory Committee (TAC) established under the Insurance Act 1938

 The

major classes of general insurance business under tariff regime as in 2006 before detariffing of the market were Fire, Petrochemicals, Engineering and Motor.

Before and after de-tariff regime price > linked to the scope of the cover  Data flow reduced after 1972 because nationalization  Pricing was done on scientific rating on ad- hoc basis  did not have flexibility in pricing or innovation of products .  had to adhere to the terms and conditions of the tariff with the standardization of covers, freezing of rates, terms and conditions, 

Before and after de-tariff regime  De-tariffing

increased the role and responsibility of the underwriter  Shift from rule-based underwriting to riskbased decision-making.  engineering and fire insurance premiums, lucrative business- fall,  in the loss-making motor insurance segment –increase

The advantages projected are:  Competition

will improve efficiency

 Efficiency

will lead to reduction of premia and benefit policyholders

 It

is part of the reforms towards liberalized economy

The fears apprehended are:  De-tariffing

may make insurance unavailable at reasonable premia.  Companies may form cartels and jack up the premia  Free market may lead to insolvency of companies and loss of protection for policyholders.

De-tariffing to Insurers PROBLEMS AND PROSPECTS  Collection of Risk- wise claims linked data is a Herculean task

 Data

mining, collation, storage and MIS for data - based underwriting strong in support is the dire need of the situation

 stiff

competition and ruthless/ aggressive marketing.

 Pricing

befitting to survival in the market

 Product

Innovation to suit market requirements.

 Reduction

of response time

DETARIFFING TO INSURED-PROBLEMS AND PROSPECTS  There

may be some degree of disappointment among large corporate on the delay in opening up with new product development

 Main

focus on negotiation with the Insurers and brokers for the lowest price

 The

customer need to be more aware of the product he is buying .apart from prices , the intricacies of the policy coverage would definitely play a crucial role

SWOT analysis 

Strength



Weakness



Innovation of products Focused penetration More operational flexibility Standardized risk assessment Appropriate customer segmentation Targeted service offerings



Poor customer service High operational cost Distrust in the system Lack of fairness in dealings More demanding customers Delay in settlement of claims Stress & strain in product marketing

    

     

Opportunities

Threats



High growth potential



Intense competition



Increased savings



Unique position of LIC



Attractive middle class



Increasing customer expectation



Expansion through competition



Shrinking profit margin



Ensure quality service



Enhanced consumer awareness



Marketing tie ups with professionals

Role of TAC   

 

Collection of data on premiums and claims, analysis of such data and dissemination of the results to the insurers. Report to IRDA on the underwriting health of the market and any aberrations in market behaviour. Constitution of Expert Groups at the request of the General Insurance council, to look into underwriting issues and recommend necessary action. Organize training to underwriters at the market level and Attend to public grievances on non-availability of insurance and try to resolve the issues by discussion with insurers

CONCLUSION: To conclude “ Detariffing” is benefiting the industry as a whole. The many survey results show similar opinion of Insurers and Insured with respect to different variables. De-tarifing does not mean that the companies can set the premium whimsically

THANKS…