Detariffication in India (PART I)

India is the fifth largest general insurance market in Asia with annual premium of $6.3 million in 2009. Tariff Advisory Committee (TAC) set up in 1968 to provide rates to the industry. Motor insurance forms the bulk of India general insurers’gross premiums (about 44%) as shown in the pie chart below which is the same as Malaysia and China’s insurance market. In recent years, a large growth in premium volumes has been driven by growth in the Motor, Health and Personal Accident lines. It can be expected that other lines will also become more significant as economic conditions develop further. Engineering has emerged as a profitable line since the removal of tariffs with all infrastructure projects requiring mandatory engineering cover. It is an evidence that although premium rates have decreased since the removal of tariffs, premium volumes have not, indicating an increase in the business volumes across the industry

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Detariffictaion in India implemented by the Regulator in a phased manner with three phases. Phase 1 is implemented with withdrawal of premium pricing restrictions.From 1 Jan 2007 to 1 Jan 2009, insurers of India were permitted to structure the premium rates, in which they can make variation in prices within 20% range of tariff rates, subject to prior regulatory filing and approval of proposed rates under File & Use process. However, they were not allowed to vary the coverage, terms, conditions and policy wordings which lead to no flexibility in altering the tariff defined product. Based on the table below, we can see the detariffication process enhanced from detariffed Marine Cargo in 1994, to detariffed Marine Hull in 2005 and then Fire, Engineering and Auto Own Damage segment in 2007.

Aviation	Aviation	Aviation
Liability	Liability	Liability
Personal Accident & Health	Personal Accident & Health	Personal Accident & Health
Marine Cargo	Marine Cargo	Marine Cargo
Marine Hull	Marine Hull	Marine Hull
Fire	Fire	Fire
Engineering	Engineering	Engineering
Auto OD	Auto OD	Auto OD
Auto TP	Auto TP	Auto TP

         1994                  April 2005                  January 2007

Detariffed

Tariffed

In Phase 2, some terms and conditions of detariffication has been reduced from 1 Jan 2009. For example, insurers are allowed to file variations in deductibles and coverage amounts with appropriate additional premium. In this phase, there is flexibility in terms of breadth of coverage compared to subject of no flexibility in phase 1. Restriction of 20% range variation has been removed. Phase 3 occurred by removing of restriction in alteration of products. In this case, insurers have more freedom in product design. Besides, opportunities are given for migrating to risk based pricing.

Generally, Motor, Fire, Engineering and Workers’ Compensation classes of India’s General Insurance sector used to be governed by various respective tariffs. All the tariffs were removed, except mandatory Motor Third Party(TP) Liability, effective 1 April 2007 whereby the Motor TP risk continues to be governed. In fact, regulators decided to set up India Motor (TP) Pool for Commercial Vehicles (CVs) in which all licensed General insurance companies were required to participate, subscribing to the extent of their respective market shares.

REFERENCES

Coby, P. A. (2006, November). On the Threshold: The Modern Insurance Market of India.

Retrieved 19^TH March 2016 from

https://www.cpcusociety.org/sites/dev.aicpcu.org/files/IQNov06.pdf

Subramnian, V. (2011, December 8). IMPACT OF DE-TARIFFICATION ON PROFITABILITY OF NON-LIFE INSURERS.
Retrieved 19^TH March 2016 from http://www.actuariesindia.org/GI/V.%20Subramanian.pdf

Zanolini, L. (2015, June). 5th MITBA CEO Conference De-tariffication in Malaysia – The Road Ahead for Our Industry. Retrieved 19^TH March 2016 from

http://www.mitba.org.my/getattachment/Media-Events/Media-Overview/MITBA-CEO-Conference-%E2%80%93-Seoul-%E2%80%93-2015/MITBA-CEO-Conf-2015-QBE-Detariffication-in-Malaysia-The-Road-Ahead-for-Our-Industry-(1).pdf.aspx