IRA probes general insurance ratesFriday February 25 2022
The Insurance Regulatory Authority (IRA) will investigate how general insurance companies set their premiums, saying there is preliminary evidence that policyholders are being overcharged.
The regulator is looking to hire a consultant to conduct an actuarial study to determine the appropriate premium rates.
Ideally, premiums should be based on a rating process whose main objective is to enable the insurer collect premiums that would enable it to meet its business expenses and earn some profit.
General insurers are however heavily influenced by market forces that recently saw a section of those offering private motor vehicle covers, for instance, move to hike premiums by 50 percent without taking into account different customer risk profiles.
“It is important that general insurance market works well and delivers good outcomes for all consumers,” IRA says in the notice calling for interested consultants to submit their applications by March 9.
“Evidence from the nature and scale of complaints received at Insurance Regulatory Authority (IRA), however [shows] this might not be the case as insurers continue to use rating practices that may, in the long run, distort competition and increase costs for both consumers and the firms themselves thereby, leading to higher overall prices for consumers.”
The consultant will be required to make recommendations on the need for any reviews, changes in legal and regulatory framework and/or approaches to premium rating of insurance products with the aim of addressing the identified gaps or disparities.
The adviser will also be mandated to develop insurance product premium rating policy guidelines “for the public service to guide in streamlining the management and administration of the benefits.”
The scope of work includes assessing supply-side players involved in the rating of insurance products, the extent they influence competition and therefore the premium rates paid by consumers.
“For some time now, concerns have continued to be raised around insurers’ premium rating practices which in certain circumstances may lead to poor outcomes for consumers,” IRA said.
“Rating for reasons other than risk profile of the insured limits effective competition and may delimit access to and use of insurance services.”
Insurers were recently temporarily stopped from raising motor vehicle insurance premiums by up to 50 per cent, pending the determination of a case filed by a lobby group.
Most of the insurance companies attributed the proposed increase of premiums to a surge in claims, some of which are fraudulent.