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

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

Use-and-file mechanism will mean more flexibility for insurers in designing products and shorter timelines for introducing innovative plans.

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

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IRDAI’s Use-and-file framework could mean better products

This new framework will be applicable to all health insurance and general insurance segments such as fire, motor and marine. This move is aimed at increasing insurance penetration in our country – according to the insurance regulator. “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,” said by the IRDAI. The new regime will come into effect very soon.

Greater flexibility to design innovative policies and add-ons

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

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 this will be applicable to retail products, including add-on covers, pilot and combi-products etc. “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.

Prior to this, getting approvals for their products on time was a challenge that many insurers faced, so the new framework is a source of relief to 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 generate 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, the firm which helps policyholders to get their grievances resolved.

Insurance companies will have to be more responsible

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

This policy will have been focus on enhancing insurance penetration, needs of health insurance to 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 practically, they will not be able to raise premiums arbitrarily. Any increase in premium 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.

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

Policyholders must be vigilant while buying a product

Insurers are more or less happy with the move, and it could result in better product choices for policyholders. However, since the products will be launched without prior IRDAI approval now than, it makes sense to go through 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.

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

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