The Insurance Regulatory and Development Authority has constituted an eight-member committee to work out alternative frameworks for detariffing the own-damage component of the motor insurance policy, including a differential pricing mechanism and a floor rate for premiums.
At a meeting on May 6, where it was decided that the own damage component of the motor insurance business would be detariffed, some companies proposed a floor price for premiums, which would ensure that companies did not cut prices and create monopolies.
The regulator has proposed to detariff one segment of the insurance business from April 1, 2005, and the committee has been mandated to submit its report by December 31, 2003.
A motor insurance policy has two components -- own damage and third party liability cover. The latter is mandatory under Indian laws and will continue to be under the Tariff Advisory Committee, which set the premium that can be charged by an insurance company.
Motor insurance has been a loss-making business for general insurers, with losses estimated at over 100 per cent of the premium amount.
"Despite the fact that motor insurance tariffs are around 3 per cent of the value of the vehicle, against 6-9 per cent abroad, prices always go down when a business is detariffed.
We do not want companies to offer insurance policies at unaffordable prices, which will impact them in the long run and ruin the market in the short run," said the chief executive of a company in favour of floor rates.