In a significant move, the Insurance Regulatory and Development Authority of India (IRDAI) has granted general insurers the authority to modify policy wordings across all corporate policy documents, excluding motor third party coverage. This decision is anticipated to revolutionize the issuance of insurance policies, according to industry officials.
A recent gazette notification issued by the government outlines that insurers now possess the liberty to amend terms, conditions, clauses, warranties, policy, and endorsement wordings applicable to various classes of business such as Fire, Engineering, Motor, Workmen’s Compensation, and others—a prerogative previously unavailable.
The IRDAI’s initiative is poised to bring about substantial benefits for the general insurance industry, India Inc, and customers alike. This regulatory change enables the customization of policy wordings in alignment with individual risk profiles, fostering product innovation, and catering to broader customer requirements.
The decision follows the establishment of a committee by IRDAI last year aimed at simplifying policy wordings. It addresses longstanding complaints from policyholders regarding the complexity of language in insurance policy contracts, making terms and conditions more accessible.
Despite the detariffing of pricing across all segments of the Indian general insurance industry in 2006, insurers were constrained in issuing customized policy wordings, adhering to predetermined formats for terms and conditions. With this regulatory adjustment, the Indian insurance market now moves closer to global standards in pricing freedom and policy document preparation, according to insurers.
These reforms are expected to bolster insurers’ financial stability, promote risk mitigation and product diversification, enhance insurance coverage, and reduce the insurance protection gap. However, IRDAI has emphasized that insurers must continue offering tariff products existing before this notification, ensuring consumer choice and continuity.
Industry stakeholders have welcomed the move, acknowledging its potential to enhance insurers’ ability to provide tailored solutions to businesses and offer consumers greater choice. Insurance brokers, long advocating for the deregulation of tariffs, see this as a positive step toward market innovation and product diversity.
While the immediate impact on existing insurance policies may be minimal, insurers anticipate a period of adjustment to develop customized offerings in consultation with reinsurers. Despite this, the removal of restrictions on drafting terms and conditions is viewed positively, as it allows insurers to better address client needs.
IRDAI’s recent approvals, including principle-based regulations and the Bima Sugam marketplace, further underscore the regulator’s commitment to fostering a dynamic and consumer-friendly insurance landscape.
In its recent board meeting, IRDAI also cleared regulatory changes pertaining to rural, social sector, and motor third-party insurance, reflecting a holistic approach toward industry development and consumer protection.
