Do not stipulate benchmark rates for fire insurance, says IRDAI
The Indian insurance regulator on Thursday clarified that it has not mandated any minimum premium rates for fire insurance risks under the heading "burning cost".
Chennai, May 12 (IANS) The Indian insurance regulator on Thursday clarified that it has not mandated any minimum premium rates for fire insurance risks under the heading "burning cost".
According to the Insurance Regulatory and Development Authority of India (IRDAI), policyholders are being led to believe that the burning cost, released by the Insurance Information Bureau of India (IIB), is "minimum mandated rate", but that the industry burning cost is only a reference point to understand claims experience in fire perils across the insurance industry.
"It is not to be construed as a minimum mandated rate laid down by IRDAI," it said.
The insurance companies have also been advised to ensure that there is no mis-information to policyholders and other stakeholders regarding the same.
Simply put, the burning cost rate is arrived at by dividing claims paid by sum insured.
In 2020, the General Insurance Corporation of India (GIC), a reinsurer, decided to accept reinsurance placement only if their clients belonging to certain industries are charged a premium rate on burning cost basis as arrived by the IIB.
The insurance regulator too advised the insurers to either adopt the burning cost rate published by the IIB, adopt their own internal burning costs, if any, or, in case of deviations from both, report to their board of such exceptions and periodically inform board reactions to the regulator.
The GIC's move in effect has forced the primary insurers to increase their rates several fold.
Fire insurance premium rate crashed soon after the insurance regulator abolished the administered pricing mechanism.
In September 2021, the IRDAI issued a draft Insurance Regulatory and Development Authority of India (Insurance Information Bureau of India) Regulations 2021.
As per the draft regulations, one of the objectives of the IIB is to generate benchmark rates for different lines of insurance business, including life, motor, health, marine, fire and others on a periodic basis for promoting reasonableness and sustainability of premiums in the insurance business.
The draft regulation mandates life/non-life/reinsurers and other entities regulated by IRDAI to share the data in required format with IIB so that it can come out with the benchmark rates.
According to the IRDAI, the draft regulations were made in consultation with the Insurance Advisory Committee (IAC), whose members are majorly from the insurance industry.
The IIB is a society registered in Andhra Pradesh.