In a bid to preempt moves to disband the third party motor insurance pool, the state general insurance companies have complained to the finance ministry this was being done to benefit the private companies. Currently, the cost of loss-making third party motor insurance is shared among the industry through a pooling mechanism.Â
The sector watchdog, Insurance Regulatory Development Authority (IRDA), has said it will consider scrapping the pooling mechanism after stakeholder consultations, but has not given any timeframe.
A finance ministry official confirmed that state insurers have raised this issue with the ministry. “Yes, they have apprised us of the situation,” he said.
The state companies feel if the pooling is stopped then private companies will get out of the loss-making and burdensome third party motor insurance, leaving the burden on them.
Chairman of a state general insurance firm told ET that the motor pool has helped make available third party insurance.
“We will go back to the pre-2007 situation where private companies will not offer this cover to commercial vehicles and the burden will be on state run insurers,” he said.
“Why will a private firm offer the cover if it means further losses,” he asked. The government expects the insurance companies to incur a loss of Rs 2500 – Rs 3500 crore in 2010-11 on account of third party insurance, a substantial portion of which will be borne by public sector insurance companies.
IRDA Chairman J Hari Narayan dismissed the allegations as baseless, adding that the regulator will not do anything to destabilize the market. “We have to have a system which is robust and fair. Earlier, there was this problem in demand and supply, which has been addressed,” he said.
Third party motor insurance is set to become a bigger problem for insurers if they are not able to price it appropriately because of pressure from the powerful transporters lobby. The IRDA is considering increasing the provisioning requirement for third party motor insurance to 175% to 200% from 153%.
If these costs are not passed on because of opposition from transporters, the adverse claims ratio on third party motor insurance could deteriorate further from the current about 180%. The state insurers want the pooling mechanism to be strengthened and administered by the finance ministry.
“The ministry can come up with a central government pool and identify a pool manager or a long term mandatory cover at the time of purchase,” said an official with New India Assurance.
Courtesy: Economic Times
