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India : IRDA to scrap standardised general insurance cover.

September 18, 2014

India’s insurance regulator, the Insurance Regulatory and Development Authority (IRDA), is set to scrap the decade-old standardised general insurance policy format covering fire, accidents or floods, leaving customers free to pick the kind of risk they need protection against.

The move could lead to reduced premiums for companies that want fewer events covered, reported the Economic Times.

For example, a power plant located in a desert state could seek cover against fire and explosion, but exclude flood. Meanwhile, factories near a river or located in low-lying areas could seek only flood cover.

“This will change the way companies buy insurance, and insurance companies price products,” an industry source familiar with the development told the newspaper. “This is the evolution from risk-based pricing to risk-based coverage. Smaller companies can avail themselves of customised products as per their needs.”

The move will bring certainty and transparency for insurance clients. Products could be customised to suit the needs of clients and supported by reinsurance, experts said.

Previous reforms in the insurance sector have been piecemeal. The first phase of liberalisation took place in 2007 when premiums were de-tariffed, with insurance companies allowed to set their own rates. In 2009, while freezing the basic wording, IRDA allowed companies to write add-ons. The latest proposal, when implemented, will constitute the long-awaited third phase of liberalisation for insurers.

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