The insurance regulator is contemplating scrapping the third party motor pool from which claims of all accident victims are settled, possibly doubling the insurance premium for millions of automobile buyers.
“The industry has been demanding it for sometime,” said J Hari Narayan, Chairman of the Insurance Regulatory and Development Authority.
This can be one way of going about it,” Narayan told ET, after meeting insurance companies. Third party motor pool — a corpus of funds created by general insurance companies — has been opposed by private sector insurers, who allege they are being forced to contribute disproportionately to the corpus.
State-run insurance companies, such as New India Assurance, which dominate auto insurance with nearly half the market share benefit from the pool as the liability is socialised. This is one segment where the regulator decides the tariff to ensure that millions of customers are not left without cover, which is mandated by law. Insurers would prefer not to provide cover since it is not profitable.
“Fundamentally, we want the pool to be dismantled,” said HDFC Ergo General Insurance MD & CEO Ritesh Kumar. “It is not benefiting anyone and pricing has to be corrected.” The third party corpus stands at Rs 5,500 crore. General Insurance Corp, which manages both motor and terrorist pools, said the claims surged to 153% of the pool, from 127% a year ago.
But it did not disclose how many are settled. This issue is such a vital one for the survival of many private insurers that top executives, such as ICICI Bank managing director Chanda Kochhar, Housing Development Finance Corp chairman Deepak Parekh, AIG country head and chief executive officer Sunil Mehta and New India Assurance and United India Insurance chairman and managing director G Srinivasan met insurance regulator last week to lobby for scrapping it.
“Issues around third party motor pool were discussed,” said one of the promoters. “Various options like dismantling the pool, declined risk pool or increasing the provisioning were discussed.” But the regulator has been pleasing insurers by allowing periodic rise in the premium.
In April, third party premium for commercial vehicles was raised as much as 70%, drawing protests from truckers who said it would squeeze their margins. It was raised 150% four years before that, but had to be rolled back to 60% due to protests.
The pool also requires more capital from the promoters. Higher third-party pool allocation reduces their solvency margins, the funds an insurance company sets aside for potential claims. This is equivalent to capital adequacy for banks.
