The Insurance Regulatory & Development Authority (Irda) has decided to launch a free-pricing system for the Rs 25,000-crore domestic general insurance industry from January 2008. The decision was taken by the sector regulator on December 14, after discussing the issue with the General Insurance Council (GIC), the official representative body of the general insurance industry.

Effectively, general insurance companies, including the four state-owned insurers and nine private sector general insurers with international partners, will be free to decide the pricing of their products on their own. Industry analysts believe that the move will bring price reductions across all products, especially for corporates.

GIC secretary general K N Bhandari confirmed this development and said the council would take Irda into confidence about the market discipline and preparedness of the market to implement the free-pricing system smoothly.

“In a day or two, we will have the final round of discussion with the regulator about the preparedness of the players to enforce market discipline while competing with each other. Without discipline and training, it would be difficult to implement a free-pricing regime,” Bhandari said.

Irda had launched detariffing in Jaunuary 2007, making it mandatory for players to get their rating approved and had simultaneously issued fiats from time-to-time to limit the extent of discount general insurance players could offer its customers, especially corporates.

Almost 50-60 per cent of the premium that companies earn is sourced from corporate accounts and in a short span of time prices had fallen by 60 to 70 per cent in all profitable corporate accounts. It has also reduced the premium growth for players and a fall was expected in the profits in 2007-08.

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