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Insurance: Some good news, some bad
S Bridget Leena/Outlook Money
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July 18, 2007

Insurers were lobbying for the past 3-4 years to decontrol fixed premium rates of fire and motor insurance, the last segments of general insurance that had fixed pricing. Detariffing, which means free pricing of rates, started on January 1, 2007. Insurance companies are taking some time to rework their premium rates. So, has removing fixed pricing been beneficial only to the insurance players or has it helped the customer as well?

K N Bhandari, general secretary, General Insurance Council, says that detariffing has resulted in right-pricing of the various segments of general insurance. The healthcare portfolio, which was subsidised earlier, has seen a price correction while the fire segment has seen a fall in premiums.

On motor insurance, insurers were earlier reluctant to provide cover for trucks (prone to high claims). But with setting up of the motor insurance pool on April 1, 2007 this has been solved because, now, when a claim is made the insurance company dips into the common pool, instead of having to bear the costs itself.

This has also resulted in a level-playing field in the insurance industry since earlier only public insurance companies insured trucks while private players kept away from them to avoid losses.

The good news

Customers can expect a further cut in their premium payments on car and home insurance from September 2007. In the last six months, although the market was detariffed, Insurance Regulatory and Development Authority had set a range of 20-40 per cent within which companies could change their policy prices. From September, however, this band will go and insurance companies will enjoy more flexibility in pricing.

Car insurance: This segment has two facets-own damage (when your vehicle is damaged in an accident) and third-party liability (when damage occurs to the other person's life and vehicle). The premiums charged on the former have fallen, while they have increased for the latter. Also, now premiums will depend on the car, its age, and no claim bonus. Most likely, premiums will be lower than last year.

Home insurance: Cover is usually given for burglary, fire, floods and other natural catastrophes. The premiums are usually less than 1 per cent of the value of the contents of your house. For example, if the structure of the house and the valuables in the house amount to Rs 35 lakh (Rs 3.5 million), the premium would be less than Rs 4,000 a year. Post-detariffing premiums have fallen marginally as fire is just one of items the home is insured for.

The Bad news

Health insurance: Premiums of mediclaims offered by state-owned insurers have gone up. This is because insurers provide a bundle of covers, such as fire, engineering, healthcare and property, to corporates. This forms a large revenue base for them. However, due to high claim payouts, mediclaim has been a bleeding portfolio for the public sector insurers.

The loss from this segment was being compensated by the profits from the fire portfolios they insured. But, with fire premiums being dismantled now, insurers are pricing covers depending on the claim experience of each segment.

With these new premiums applicable now, maybe it's time for you to dig out your insurance papers and take a relook at them.

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