Introduction
One of the main laws governing the insurance industry in India is the Insurance Act, 1938, which was established before many others. The introduction of this Act includes Section 64UC, which helps standardise insurance rates through the establishment and work of the Tariff Advisory Committee (TAC). The TAC works to ensure insurance premiums and policies are fair, equitable, and contribute to the stability of the insurance industry.
This paper analyses the Tariff Advisory Committee by Section 64UC of the Insurance Act, 1938, and considers how changes made after liberalisation and the rise of competition in India’s insurance industry have affected the Committee.
Historical background and the need for tariff regulation
Earlier, a small number of companies operated in the Indian insurance market, which was tightly controlled by regulators. GIC and its connected companies supplied most of the general insurance in the country. Given all companies charged the same rates and needed to ensure fairness, there had to be a central regulating body for premiums, policy conditions, and terms.
It was for this need that Section 64UC of the Insurance Act, 1938 created the Tariff Advisory Committee (TAC). It aimed to protect companies from such problems as underpricing or overpricing.
Legal Framework: Section 64UC of the Insurance Act, 1938
Section 64UC of the Insurance Act, 1938, includes information on the creation of the Tariff Advisory Committee. It is explained in this section:
The TAC oversees the control and regulation of all prices, offers, terms, and conditions used for each type of risk by insurers.
Every insurance company is obliged to fulfil the directives charged by the TAC in this section.
This also allows the TAC to look over and adjust tariffs whenever necessary.
It is required by the Act that everyone involved with insurance decisions strictly obey the decisions of the committee.
Therefore, TAC is given the ability to legislate changes to prices and manage regulations.
Structure and Functions of the Tariff Advisory Committee
The authority was launched as a legal entity due to the regulation of general insurance by the IRDAI in 1972.
Composition:
Generally, the group included members from insurance companies, the General Insurance Council, and government appointments.
It had members who were actuarial experts and understood the insurance and risk field.
Key Functions:
TAC was assigned to regulate and set premiums for fire, marine, motor, engineering, and health insurance by the Government.
To create consistency and fairness among policies, the TAC standardised the terms that every policy must include.
The TAC was in charge of checking that companies met the required standards in their underwriting practices.
Periodic changes in tariffs were allowed by the committee whenever conditions or circumstances demanded them.
Importance of TAC in the Pre-Liberalisation Era.
During the time before liberalisation, TAC was responsible for maintaining order and control in the general insurance sector. No tariff regulation could have created unhealthy competition and instability among the few employees. The TAC standardised the information.
Guaranteed insurance products were not too expensive.
Managed to ensure that insurers were stable and financially strong.
Company policies made sure that no more unethical or price-cutting was done.
Standard rates and terms for all helped secure those who had bought insurance.
Post-Liberalisation Shift: De-Tariffing of Insurance
In the 1990s, opening up the Indian economy caused many changes in the insurance sector. The appearance of the IRDAI in 1999 and private companies led to greater competition for customers.
In January 2007, IRDAI decided to remove the tariff structure for general insurance in the fire and engineering sections. As a result, it was understood that:
Companies offering insurance were allowed to set their premiums based on their own assessments.
Though TAC was not needed for fixing tariffs, they held onto their advisory duties for some time.
The purpose of the de-tariffing was:
Improving products and changing their design according to the latest trends.
Trying to choose risk-based rates rather than a flat rate for all customers.
Improving the level of competition and increasing which goods consumers can choose from.
Therefore, TAC stopped operating, and IRDAI took over its remaining tasks.
Current Scenario and the TAC’s Legacy
While the Tariff Advisory Committee is no longer active like before, its impact can still be felt today.
Transparent pricing: Under de-tariffing, insurers still have to explain their pricing to the Insurance Regulatory and Development Authority of India (IRDAI).
All products and their pricing should be reported to IRDAI, as was required by the TAC before.
TAC is a significant principle that helps the IRDAI look after the interests of policyholders.
Due to TAC’s work, the insurance industry in India relies heavily on its original findings in setting premium rates.
Criticisms and Challenges
Even though TAC stabilised the country, it still faced criticism.
An unbending tariff system prevented innovation and caused companies to treat all products the same.
The set rates did not accurately show the real risk of policyholders.
Smaller competition: Due to their size, insurers could not have the same edge when providing low rates.
While de-tariffing was intended to resolve the problems, it introduced other obstacles, for example:
Chance of sacrificing revenues to attract more customers.
Insurers must put more effort into developing risk assessment.
Since tariffs are not centralised, governments will pay more attention to regulating the industry.
Conclusion
For several decades, the Tariff Advisory Committee specified under Section 64UC of the Insurance Act, 1938 managed insurance issues in India.. This created rules for consistent development, ensured a level playing field, and protected all customers when the market was lacking such standards. Despite liberalisation and de-tariffing, the regulations the organisation set in place are still in use.
Since TAC belongs to the past, IRDAI takes responsibility for educating insurance companies and maximising policyholders’ benefits while maintaining the stability of the market.
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