To give wider choices to customers and increase insurance penetration, regulator IRDAI on Thursday permitted general insurers to design alternative products to cover risk from fire and allied perils for dwellings and small businesses. 

The Insurance Regulatory and Development Authority of India (IRDAI) had issued guidelines for standard products for fire and allied perils for dwellings, micro and small businesses (Bharat Griha Raksha, Bharat Sookshma Udyam Suraksha and Bharat Laghu Udyam Suraksha) in January 2021. 

These standard products replaced the Standard Fire and Special Perils (SFSP) policy for the named risks and no product other than the standard products was permitted for fire and allied risks. 

After considering the increasing demand for new covers in the fire line of business, the Authority...hereby permits general insurers to design and file alternative products covering fire and allied perils for the risks (de-notified earlier," IRDAI said in a circular. 

Such alternative products, it added, may be variations of the standard product and may include already approved add-ons as part of the base product or may delete an existing provision. "However, the definitions and wordings of terms used in the standard product shall be the reference point for those terms when used in the alternative products as well. Needless to add, the pricing of the products shall be commensurate to the risks involved," it said. 

One of the objectives of permitting alternative products is to insure evolving fire insurance risks of Dwellings, Micro and Small Businesses to increase insurance penetration. It also aims to identify protection gaps in the existing fire insurance products and address the changing needs of the market with due consideration to the policyholders' interests in terms of suitability and affordability. 

Another objective is to promote healthy and sustainable development of the fire insurance market with new and alternative products that provide wide options to policyholders in addition to standard products, IRDAI said. The latest directives will come into force on June 1, 2022. In another circular, the regulator said it has been receiving several complaints from policyholders, both directly and through various platforms such as industry associations, that insurers are referring to the Burning Cost as a mandated minimum rate'. 

It said that the Insurance Information Bureau of India has been periodically publishing the industry Burning Cost for Fire perils (FLEXA). All insurers, it said, have been informed that the purpose of this is to give an indication to insurers of the industry Burning Costs for various occupancies, for appropriate use in the matter of pricing the various risks.