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Friday 19 September 2014

Non-life insurance space to have innovative products soon

Insurers indicated that product meant for specific risk profiles after assessing the individual customers would also be launched


Customers might soon see specific general insurance products suited to their profession, income-bracket, age and need, if the recommendations of the Working Group on File & Use guidelines for the non-life sector is accepted by the  Insurance Regulatory and Development Authority (Irda).

The working group has said general insurers can launch a product for a short period in a defined pilot area with defined exposure limits on a pilot basis after informing Irda. After gaining experience on the product, they might finalise the product and take it through approval process depending upon whether it is a retail product or commercial.

Rakesh Jain, CEO of Reliance General Insurance, said from a use-and-file perspective, insurers will be enabled to offer customised products for different individuals rather than generic products.

The industry had been recommending a use-and-file system for some product types to co-exist with file-and-use system so that they could respond to customer requirements faster under a use-and-file system. The working group, after considerable deliberations on the subject, has recommended a use-and-file system for commercial products. Retail products will continue to be governed by file and use.

The current file-and-use system requires all products to be filed with Irda before these can be used. The working group report said the process of developing innovative products requires experimentation, testing, refinement and finalisation, but the current system does not afford this freedom of testing and refinement and jumps from experimentation to finalisation.

In April 2014, Irda had set up a working group to review the file-and-use norms for the general insurance industry. The regulator said these norms that have been followed since the past eight years, insurers have filed various products as well as add-ons and most of them have been approved by them.

Insurers indicated that product meant for specific risk profiles after assessing the individual customers would also be launched.

Though insurance companies do market testing across different segments before a new product is launched, officially companies are not allowed to launch pilot products.

Sector experts said this would enable insurers to test the market beforehand, so that they do not burn their fingers launching a product that is a misfit.

Having a product management committee as envisaged by the working group will ensure that the adequate due diligence is done before any product is sent for approval, with respect to its features, usability and pricing, said a senior non-life industry executive.

Amarnath Ananthanarayanan, CEO and MD, Bharti AXA General Insurance, explained that pilots should be allowed for specific geographies, since India is a diverse market. “A product launched as a pilot in north India may not be representative of the entire country. We are hoping that we are allowed to launch products in a few states pan India,” he added.

In order to bring a more structured approach to the process, which takes into account the interests of all stakeholders of an insurance product, the working group has recommended the creation of a board-led product management committee.

The role of product management committee will be akin to the role of a regulator within an insurer. The committee affords an internal self-regulatory mechanism that will create appropriate structures and processes for effectively managing the operations in the entire product life-cycle. All products either under file-and-use or use-and-file will be approved by the committee.

Products under file-and-use will be sent to Irda after the committee’s approval for regulatory approval process, while products under use-and-file might be sold by an insurer after the committee’s approval under information to Irda.

The working group's report said it is expected that Irda should revert with its observations on the products under file-and-use within 30 days of receipt of product filing, failing which insurers might be free to sell the product. Though the insurance regulations had talked about product approvals under 30 days, in practice there have been delays due to various causes. Jain of Reliance General Insurance added the 30-day approval will help Irda to have a time frame to revert to insurers.

At present, insurance companies have classified products as retail and commercial products. Retail products that are primarily designed for retail customers and commercial products that are primarily designed for customers other than individuals and includes firms, companies, trusts, associations, societies, government, etc.

Ananthanarayanan further said under the use-and-file guidelines, there is no clarity on whether it would mean flexibility in tariff. He said the exact meaning of the terminology should be clarified by the regulator.

It would also become easier to track products since the working group has recommended a Unique Identification Number (UIN). UIN is proposed to be allotted through an automatic online process and will be a unique number for each company, each product and each add on cover.

Under the existing file and use system, any product approval is valid till eternity. This is proposed to be changed and it is recommended that products once approved under any of the approval systems will remain valid for 5 years after which they will have to be filed again. The underwriting of a private general insurance company said that with changing market dynamics, it is not viable to have one product existing for several years and hence insurers would have the product segmented out every three years.

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