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The IRDAI has advised property insurers and reinsurers to stop including the burning costs rate as published by the Insurance Information Bureau (IIB) in their reinsurance treaties for fire and engineering risks. Starting April 1st, 2023, these costs are not to be embedded as “minimum rates” for risks in reinsurance treaties.
IIB rates are derived by estimating the expected losses for a policy based on previous year’s average, after taking into account claims inflation and change in exposure. As per IRDAI, such prescription by any reinsurer that effectively creates or reinstates a market (price) tariff is not according to the de-tariffed pricing regime presently and is distorting the level playing field intended to be provided by the Authority. The regulator suggests that treaty arrangements where IIB-published burning costs are taken as minimum risk rates does not reflect quality or loss history of individual risk and dissuade risk management along with the loss mitigation investments of insurance buyers.
The IRDAI has been propagating reforms in the non-life insurance sector for the ease of business for Insurers and to ensure choices for buyers/consumers of insurance and develop a free-market regime to foster sensible risk management and loss control.