Step by Step de tariff of Indian Auto Insurance

Phase 1
*IRDA allowed general insurance companies for 20% flexibility in OD premium w.e.f. January 1st, 2007. Complete price de tariff was not allowed in order to observe the changes and reactions in market situation.
*TP premium had also increased and kept regulated.
*Concept of TP pool came in existence, where all TP premium collection goes to a common pool and can be utilized according to market share of the insurance players in case of third party liability. It was introduced to avoid sudden bankruptcy of any new or small turnover company.
Effect on Industry
After first phase was announced, there were a lot of immediate reactions from all insurance companies. Most of them suddenly brought down the premium up to 20% and a new price war had started and some new players in market took advantage. With in few months customers became aware of the available discounts and were not ready to purchase the product without discount. All these changes had again pointed out the price constraint in Indian Market. Although it was the initial phase of de tariff still most of the insurance players were forced to bear extra cost out of the claim cost remaining same or increased a bit. If we look on the brighter side of this change, we found that some of the insurance players could emerge as financially more stable and were able to manage their portfolio by increasing rates for some high risk vehicles.

Phase 2
*Complete de tariff was allowed for OD premium w.e.f January 1st, 2008
*TP premium was still kept regulated
*Terms and conditions and product features of motor insurance remained un changed
*The General Insurance Council (advisory body of insurers) was assigned to monitor the activities in market to ensure market discipline
*IRDA issued a circular to ensure the minimum coverage and basic guidelines
Effect on Industry
Once the OD price completely got de tariff auto insurance got even cheaper with further discounting up to 40%. Past one year has certainly raised the issue of increasing claim cost of insurance companies. Insurers have also learnt from their experience that maintaining service standards is quite difficult with this pricing. They have also tried to find certain cost controlling measures and focusing on losses other than OD like theft. After seeing all these changes and consequences market is all set to see the situation where all car manufacturers and insurance players need to work closely to bring down the sky rocketing costs without affecting the degraded pricing and services to larger extent.

Phase 3
*January 2009 is expected to bring next level of de tariff regime, when product feature will also be de regulated along with the existing total de regulated pricing norms.
*Standard product guidelines will remain unchanged to provide minimum essential protection. However customers can avail a wide range of add on covers to fulfill their all insurance needs in one package. Some of such additional features are loaner car, cover against depreciation, hospitalization cover, etc.
*All these covers will come at some loading on OD, but to keep the over all pricing reasonable enough for customers several things would be introduced like voluntary excess, NCB protection, etc.

Effect on Industry
Although it’s too early to comment on expected changes in market conditions, but we certainly expect that customers will have various packages to choose from. Customer awareness (currently it’s quite low) will play a vital role in success of new.