THE general insurance industry will see freeing of prices from January 1, 2008. What would follow will be a change in wordings which most likely should take shape from April 1, 2008, industry sources said. The General Insurance Council has put up the proposed wordings on the their website for comments from various quarters. Once the wordings undergo a change, the clients need to be very careful in understanding the coverage before accepting the terms from insurance companies.

The proposed changes in fire insurance, which forms a major component, are that the 12 perils which are part of the standard fire insurance base cover will stand reduced to just six. Most importantly, Riot Strike and Malicious Damage (RSMD) and Storm Tempest, Flood and Inundation(STFI), which is part of the base cover, would be now an add-on cover - you pay extra for it - once the proposed wordings take effect. Earthquake cover is enlarged to take care of tsunami even if STFI cover is not taken, as is the case in the present wordings. Furthermore, the insured need to comply with the recommendations of the insurer, maintain the property in proper state of repair and comply with all statutory requirements. Failure to do so can make the contract voidable.

All these days, we were hearing of an industrial allrisk policy which was given to companies whose capital outlay was more than Rs 100 crore in one or more locations. Now, even smaller set-ups can have similar policies, which will be called Property All-Risk Policy. This basically is an insurance protection covering allrisk minus the exclusions which are spelt out in the policy wording. This would have three sections - Section 1 for property, Section 2 for all-risk machinery insurance and Section 3 for business interruption. Section 2 and 3 are optional.

Another important proposal is the introduction of loss limits. It means one need not insure the entire sum insured, but insure the maximum probable loss in a location. The only disadvantage could be when the bank interests are involved.

Once this is done, one would see insurance companies design policies with the help of brokers to suit specific business requirements like one with a specific product for pharma, cement and automobile industries. Each insurance company would have typical covers which, however, would need to be filed with the IRDA and approvals obtained before the same is put to use.

Motor insurance will also undergo changes in the wordings. The major change would be the duty of the insured to take reasonable care of the vehicle against any damage and also maintain it in efficient condition. It would mean that the insurance company can deny a claim if it is proved that the vehicle was not maintained properly and reasonable care was not taken by the insured to protect it from damage.

Furthermore, the cancellation notice period has been increased to 15 days from the seven days prevalent today. The policy can be voidable in the event of misdescription/misrepresentation although the same is there in the present wordings also. But the best part of the proposed wordings are that everything is clearly spelt out. The liability premium for motor would continue to be the same as the proposed increase in liability premium by 150% has been shot down by the government and further reduction in this section can affect the profitability of the insurance company deeply.

Householders insurance is also proposed to undergo some changes. Theft has been newly incorporated. Other new feature is money up to a certain limit can be covered. Damage from falling trees/electricity pole also have been brought into the ambit of the policy. Definition is clear and no scope of ambiguity is left.

The major takeaways are the wording would be more clear, corporate would pay extra for any add-on cover, smaller companies could take covers similar to the industrial all-risk policies, liability premium for motor insurance would remain unaltered, householders insurance has some extra cover like the theft, coverage for money and the like.

With the price being freed from January 2008, risk management would assume great importance. Loss prevention methods before and after loss would also be taken into consideration while pricing is done. Good housekeeping, past loss experience would also have a bearing on the cost.

Source :- P Sachidanand - The author is First Policy Insurance Adv P Ltd CEO. Views expressed are personal