The finance ministry has rescinded the insurance regulator’s decision to withdraw third party insurance pool. The move will give a temporary benefit to the transport operators ahead of the general elections.
The ministry has directed the regulator to issue a fresh order two years after the pool system was abandoned.
“The government is of the opinion that the order suffers from a manifest error. The order is set aside. The matter is remanded to the Authority to pass a fresh order after following a procedure laid down in the law including full and effective consultation… under the Insurance Law,” said an order by Anup Wadhawan, joint secretary, department of financial services in the finance ministry.
Under this system, mostly the public sector general insurers offer third party cover for commercial vehicles and pay the claims from a pool which is contributed to by other insurance companies. It was introduced by the IRDA in 2007 but was highly unprofitable for private insurers and is estimated to have shaved off over Rs 7,000 crore from the turnover of the industry.
IRDA accordingly had abandoned the system in December 2011 and moved to a declined risk pool where all general insurers are responsible for the policies they underwrite. But the finance ministry has held this move invalid on a technical ground. The order is based on an appeal by the General Insurance Corporation.
A source in the General Insurance Council told news persons, “The finance ministry order has been passed recently. We cannot comment on it.” An official with a private insurer said. “As of now, we will follow the system of declined risk pool. The Irda has the power to re-issue the orders and we will wait for it.”
