The general insurance industry, facing a Rs 10,000-crore hit in its bottom line due to third-party motor pool losses, has been given some relief by the Insurance Regulatory and Development Authority (Irda). Companies will be allowed to provide for their losses in three tranches, by June 30, 2014.
Besides, they may maintain lower solvency norms, at 1.3 and 1.4 for 2011-12 and 2012-13, respectively. From 2013-14, the norms will get back to the prescribed level of 1.5. According to the new directive, the insurers will now have to provide for the liabilities of 2007-08 and 2008-09 by June 30 this year. Similarly, the losses of 2009-10 should be provided for by June 30, 2013. The losses for 2010-11 and 2011-12 will have to be provided for by June 30, 2014.
However, all companies will also have the option to settle the entire liabilities at one go, by the end of this month. Last December, Irda decided to do away with the existing commercial third-party motor pool and said this would be dismantled on a clean-cut basis, where the losses from 2007-08 to 2011-12 would be shared in accordance with the new loss ratios as prescribed, in the region of 153-213 per cent.
All the provisions were expected to be provided for by March 31, 2012, taking 153 per cent as the loss ratio. Contribution of each insurer towards the pool would be based on their respective market share in all lines of businesses.
The pool administrator was to distribute the losses among the insurers, based on the motor premiums written in the current financial year, but taking the loss ratio at 163-213 per cent, depending on the financial year.
This would mean an additional loss of around Rs 11,000 crore for the general insurance setor, taking into account all the liabilities since the pool was formed in 2007. The loss ratios will be 213 per cent for the current year, 183 per cent for 2010-11 and 163 per cent for 2009-10. Provisioning for 2008-09 will be 153 per cent. A loss ratio in excess of 100 means for every Rs 100 premium collected, the claims paid are over Rs 100, thereby indicating losses.
Total premiums collected by general insurance companies were Rs 44,000 crore during 2010-11, of which motor premiums constituted Rs 18,000 crore. Typically, third-party liability accounts for 35 per cent of the total motor premiums.The industry took a hit of Rs 10,250 crore during 2010-11 on commercial third-party motor pool losses.
To distribute the losses among the insurers, an Indian Motor Third Party Insurance Pool was created in April 2007, for the commercial vehicle third-party insurance business. The share of each insurer was decided according to overall market share of all lines of business.
Niladri Bhattacharya
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