IRDAI has completely withdrawn the tariffs. Pricing was freed earlier, now even the wording has been completely freed.

There is no concept of “Copyrights” for insurance policy wordings. Any insurance company that innovates and comes up with a good product by changing the wording to take care of all pain points in the present wording will have a first-mover advantage and could capture part of the market. However, within a few months, the other players would copy the wording.

Let’s look at a few of the pain points of customers presently buying Fire Insurance and what changes need to be made in the current fire policy. If these pain points are resolved and a new wording is created, this could turn out to be attractive to customers.

1. Electrical Exclusion: Electrical exclusion can be deleted.
2. Inherent vice Exclusion: Spontaneous combustion exclusion can be deleted. Also, for spontaneous combustion, the need to have a fire can be excluded.
3. Boiler Explosion exclusion: Boiler Explosion exclusion can be deleted. This would mean that boiler warranties are incorporated into the policy.
4. Mobile equipment coverage(worldwide) can be introduced.
5. Burglary/Theft can be inbuilt.
6. Impact damage can be broadened to any accidental means.
7. Depreciation deductions in claims: The RIV clause can be inbuilt.
8. Underinsurance deductions: Underinsurance can be waived. This would require underwriters to have the capability to look at asset registers at the underwriting stage itself and convince themselves that the insured is declaring their sum insured properly.
9. Full Sum Insured for Catastrophic perils: Loss limits can be introduced for floods, cyclones, and earthquakes. This can help insurers manage their accumulations and could result in savings in CAT XL reinsurance pricing.
10. Increased Cost of Working (ICOW) coverage: Presently, insureds have to buy a FLOP policy covering Gross Profits. Some segments like IT companies and telecom companies rarely have a loss of gross profits after major events. They only have an Increased cost of working. Similar to ICOW coverage under Electronic Equipment Insurance, ICOW coverage under Fire Policy can be introduced.
11. Arbitration clause: Change the clause to make every aspect of the contract arbitrable. Also identify a neutral party at the underwriting stage itself, who will be authorized to appoint a single arbitrator and whose order will be binding on both parties.

Insurers who plan to introduce such new products should ensure that while negotiating the Reinsurance treaties for 2024-25 should inform the reinsurance panel about the likely changes they would be introducing during the year and get the panel’s agreement for the changes.

Blog Written By: Atmaram Cheruvu