IRDAI’s Use-and-file framework could mean better products, but policyholders should exercise caution

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Soon, health and general insurance companies will be able to launch their products without waiting for prior approval from the Insurance Regulatory and Development Authority of India (IRDAI).

The new framework will be applicable to all health insurance products and general insurance segments such as fire, motor and marine. According to the insurance regulator, this move is aimed at increasing insurance penetration in the country. “This is a stepping stone towards improving the ease of doing business in the insurance sector by moving from the current regime requiring prior approval for launching the products to a regime where products could be launched without any prior approval,” the IRDAI said. The new regime will come into effect immediately.

Also read: IRDAI permits health and general insurers to launch products without its prior approval

Greater flexibility to design innovative policies, add-ons

The IRDAI has made it clear that it expects the insurance industry to use this opportunity to introduce customised and innovative products so that policyholders have more choice. Expectedly, insurance companies have welcomed this reform. "(The move) will aid customer centricity and fuel product innovation which should help augment insurance penetration in our country,” says Rakesh Jain, MD and CEO, Reliance General Insurance.

While this is a new development for retail, or individual insurance products, insurers were already following the use-and-file system for launching group insurance products. Now, it will be applicable to retail products, including add-on covers, pilot and combi-products. “This is applicable for both fresh filing and also in case of modification or revision of policies.  Insurers will now need to file the product within seven days of launch. The new guidelines will help the industry to launch products faster,” says Dr S Prakash, Managing Director, Star Health and Allied Insurance.

Getting approvals for their products on time was a challenge that many insurers faced, so the new framework is a source of relief for them. “In the past, we have seen that the approval process generally takes at least a year to be completed. But with this new circular, insurers will be able to launch their products quickly,” says Yogesh Agarwal, Founder and CEO, Onsurity, a health-tech company.

Flexibility to launch products without prior approval could spawn innovative offerings. “We could see novel products such as more pay-as-you-use motor insurance policies, better wellness-based products that offer discounts on maintaining healthy lifestyle and so on,” says Shilpa Arora, Chief Operating Officer, Insurance Samadhan, a firm that helps policyholders get their grievances resolved.

Also read: Health-tech firms offering subscription-based, insurance-like plans on IRDAI’s radar

Insurance companies will need to be more responsible

While allowing insurance companies more freedom to launch products, the insurance regulator has also tried to put some safeguards to protect policyholders’ interests. Insurers will have to put in place their Board-approved policy for products that are to be filed, modified or revised.

This policy will have to focus on enhancing insurance penetration, health insurance needs of people, providing simple products. “The product management committee of the insurer shall ensure compliance to the policy of the board while signing of the new products or modification of products…insurers shall ensure that the product pricing is viable, self-sustainable and affordable…,” the IRDAI circular says.

If insurers follow the circular in letter and spirit, they will not be able to raise premiums arbitrarily. Any increase will have to be based on the companies’ incurred claims ratio  (premiums earned vs claims paid during the year) for that particular product. “Insurers shall disclose the rationale for revision in price along with the underlying claim experience (Incurred Claims Ratio) of the product that lead to the revision in the price in their website,” the notification says.

The insurance regulator has also specified the penal action against insurance companies who fail to adhere to these norms. IRDAI can ask them withdraw the product, besides rolling back the flexibility given to the insurer for some time. “There will be further guidelines that would be issued by IRDAI, laying down principles and detailing the roles and responsibilities of product management committee, actuarial team and board,” adds Agarwal.

Also read: How should policyholders read incurred claim ratio data?

Policyholders must be watchful

Insurers are understandably happy with the move, and it could result in more and better product choices for policyholders. However, since the products will be launched without prior IRDAI approval unlike now, it makes sense to go over the policy wordings, terms and conditions with a fine-tooth comb. “However, they need to be more vigilant while buying a product. It will be all the more important now to read the product features and exclusion clauses carefully,” says Arora of Insurance Samadhan.

Even with intense regulatory scrutiny at present, there is no dearth of policyholders with grievances against their insurers. Since insurers will now get more leeway, you need to be more cautious and understand the product yourself instead of simply going by an intermediary’s recommendations. “The freedom to insurers comes with great responsibility and ownership. (But) there are chances that some insurers could put unfair clauses or price products inappropriately. But we strongly expect IRDAI to put the onus and fix responsibility of ensuring fairness in product offerings on insurers’ product management committees,” adds Agarwal.