Chennai: In order to remove misgivings in the minds of policyholders and to bring some uniformity in the definitions in a free pricing regime, the General Insurance Council of India (GICI) has notified a draft stipulating standard market wordings and uniform phraseology to be used by all non-life insurers.

All the non-life insurers have to use the standard market wordings for fire, engineering and motor insurance policies and endorsements.

"The standardisation of the policy wordings would facilitate smooth transition from administered pricing market to a free pricing market," says K N Bhandari, secretary general, GICI.

According to him, the draft policy wordings have been arrived after detailed consultations with all the non-life insurers. The document does not prescribe the conditions of an insurance policy but prescribes how the conditions are to be worded.

"In a free pricing regime there will be room for mis-selling. This is one attempt to prevent mis-selling. The underwriter''''s forum of the domestic non-life insurers were involved in this project," Bhandari says.

Further in a free pricing market, standardisation of terminologies would enable a policyholder to compare similar products from different insurers to arrive at an informed decision.

It took six months for the team to arrive at the draft. GICI wants to finalise the wording by this December.

From 1 January 2008, the Insurance Regulatory and Development Authority (IRDA) will permit the non-life insurers to vary the terms of coverage thereby ushering a true free pricing regime.

In January 2007, IRDA had permitted non-life insurers to evolve their own rates for fire, engineering and motor insurances subject to certain ceilings.

As a result there was all round reduction in the fire and engineering insurances. The fire insurance rates went down by nearly 50 per cent.

With the notification of the draft wordings GICI is expecting the industry''''s reaction and response.

"This is a dynamic and not a static document. Depending on the market situation the wordings could be changed," he adds.

Under the engineering insurance portfolio, GICI has formulated standard policy and endorsement wordings for the following policies-Advanced Loss of Profit / Delay in start-up Policy, Boiler and Pressure Plant Insurance Policy, Construction All Risks Insurance Policy, Contractor''''s Plant & Machinery Insurance Policy, Deterioration of Stocks Policy, Electronic Equipment Insurance Policy, Machinery Breakdown Insurance Policy and Erection All Risks Insurance Policy.

Under the fire insurance portfolio GICI has prescribed the policy wordings for (a) standard fire policy (b) property all risks policy (c) business interruption policy and (d) home insurance policy.

Meanwhile the draft is engaging the attention of the industry "We are studying the draft," responds S S Gopalarathnam, president, operations, Cholamandalam MS General Insurance Company Limited.

Prices not to go down further
Early this month, IRDA has given non-life insurers full freedom to price their products. They now have to file their revised rates and justification with IRDA.

Almost all insurers have filed their rates with the justification, though none of them have received the regulator''''s sanction, yet.

Says Bhandari, "According to preliminary estimates, there will not be any more drastic rate reductions in the fire and engineering insurance policies. They have already bottomed out." The reduction in rates is estimated at between 5-10 per cent from the existing levels, he says.

According to him GICI will come out with such a guideline that would define the conditions and allow portability of the policy from one insurer to another.