Insurance Policies, in India, had never been an attractive investment options so far. Till few years from now, key highlight of insurance had been the tax savings option. Now with no arbitrary sub limits in section 80C (earlier section 88), this angle too is irrelevant as in most cases, PF deduction by employer or principal amount paid for housing loan are sufficient to meet the upper limit stipulated under the Income Tax Act.

Till few years back, when only Govt controlled insurance companies were there, Government could bail them out, as it did bail out UTI twice. With the entry of private sector in insurance field, Govt did control this field by way of introducing various regulations through IRDA. This was essentially to discipline this field at least in the initial years of teething troubles.

This might have been with noble intentions, but it also restricted the freedom of various insurance companies to offer liberal benefits in assured terms. So even better performing insurance companies too had to restrict their promises.

Now, IRDA has decided to give the industry more time, as boards of companies will now have to decide on the extent leeway that they have in pricing of products. From November 2007, the insurance companies would have greater freedom to decide about their policies.

Earlier, insurers said complete freedom in pricing would bring down property insurance cost down by 20%. This reduction was expected on the back of the fall in rates that had already taken place since January this year, following the dismantling of the tariff regime. However, even after de-tariffing, the regulator had placed restrictions on pricing by setting a floor rate, which was up to 50% of the old tariff rates. These floor rates, too, are set to go from November.

In the free-pricing regime, boards of non-life insurance companies will have far more responsibility in deciding the extent to which an insurer can over stretch pricing. Irda has asked insurance companies to ensure that the board fixes a ceiling on an insurance company’s ability to retain risks for large projects, which require specific reinsurance cover. The regulator has also said that once the ceiling has been decided by their boards, insurance companies should not play around with retention levels.

This move is likely to benefit the consumers as companies who perform better would be able to open better products. Underhand discounts would come in open leading to more transparency.

As per industry experts, the tariffs for engineering and some in frastructure projects, could witness the reduction of rates by up to 10% and Life insurance sector could witness reduction up to 15% in their existing premiums. Watch out !