Impact of detariffing of insurance sector on the insurance business

Tariff Advisory Committee was controlling the Tariff structure in Insurance sector. But with the opening up of this sector for private players in 1999 the whole scenario changed. To make this sector truly competitive general insurance sector was detariffed from April 1, 2007. The Rs. 348 billion Indian general insurance industry went through a challenging period during 2007-10 that was marked by de-tariffing of the Fire, Motor and Engineering lines of insurance, besides a slowdown in economic growth. The result was a compounded annual growth rate (CAGR) of 11.5% during this period, as against 16.8% during 2004-07. To attain scale and size, few players aggressively targeted the profitable lines of Fire, Engineering and Motor Own Damage in the de-tariffed scenario, which led to steep price discounts that ignored rate adequacy and risk-based pricing to a large extent. As a result, while premium growth remained muted, risk coverage increased and this led to a rise in claims for both public and private sector entities. This paper discuss in detail the impact of detariffing on General Insurance Sector.

Dr. Alka Mittal
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