Insurers, customers to benefit from change in policy wordings

THE DECISION of insurance regulator IRDAI to allow general insurers to change the wordings in all corporate policy documents, except motor third party, is expected to lead to a sea change in the way insurance policies are issued, insurance officials said.

Insurers can now change terms, conditions, clauses, warranties, policy and endorsement wordings applicable to certain classes of business such as Fire, Engineering, Motor, Workmen’s Compensation and other classes of insurances, which were not allowed earlier, said a gazette notification issued by the government. The IRDAI decision is expected to benefit the general insurance industry, India Inc in general and customers.

The latest decision would enable customisation of the policy wordings in accordance with the risk profile, encourage product innovation and meet the larger customer needs.

IRDAI had set up a committee to simplify policy wordings last year. The IRDAI move came following complaints that policyholders often find it difficult to understand the terms and conditions in insurance policy contracts

THE CHANGE

■ Insurers can now change terms, conditions, clauses, warranties, policy and endorsement wordings applicable to certain classes of business which were not allowed earlier, said a gazette notification issued by the government

due to the complex language used in the policy.

Despite detariffing in all the segments of Indian general insurance industry in 2006 in terms of pricing, except motor third party motor premium, the insurers didn’ t have the freedom in issuing customised policy wordings and had to follow a particular set of pre-determined format as far the wordings including terms and conditions in the policy document are concerned. “The Indian insurance market will be now aligned with leading global markets in freedom of pricing and preparing policy documents,” insurers said.

The latest market reforms will enhance the financial soundness of insurers, incentivise risk mitigation and product diversification, improve insurance coverage, and bridge the insurance protection gap. However, the IRDAI has clarified that no insurer will at any time withdraw or discourage the use of or decline to offer to any customer any of the tariff productswhich have been in existence prior to this notification.

“IRDAI’S recent decision to allow general insurers flexibility in policy wordings for commercial insurance is a welcome move. This move will augment the ability of insurers to offer tailor-made solutions to the business entities,” said the CEO of a private insurance firm.

Said an official of the Insurance Brokers Association of India, “The de-notification of tariff is very welcome move which has been a long-standing demand of the insurance brokers. This will provide greater choice and freedom to the consumers in terms of selection of risks to be insured. The move will force insurers to innovate and penetrate the market with newer products.”

The insurance industry would need some time to offer customised offerings basis this regulatory change post-consultation with the reinsurers. In the interim, the immediate impact of these regulatory changes may be minimal for the renewal of existing insurance policies, he added.

“It will take at least a few weeks to put in place innovative covers after insurers are allowed to customise the coverages across all the line of businesses (LOBS). It would not immediately impact the forthcoming April 1 renewals ,” said an insurance official.

“After pricing, we are happy that now the restrictions on drafting terms and conditions have been removed. It will help the general insurers to meet the larger requirements of their clients,’’ he said. IRDAI had recently approved eight principle-based regulations includingthemuch-awaitedbima Sugam marketplace.

In its board meeting last month, IRDAI cleared the regulatory changes under rural, social sector and motor Third-party (TP) motor insurance. For rural obligations, the unit of measurement will now be the gram panchayat. The scope of the social sector has been extended to cover cardholders and beneficiaries under various schemes. Under Motor TP, the unit of measurement will be the renewal of coverage for goods and passenger-carrying vehicles, as well as tractors.