Irda meet on third party premia cut

General insuance companies will meet the chairman of Insurance Regulatory and Development Authority (Irda) over the finance ministry's decision to more than halve the increase in premium on third-party motor insurance making the business unviable.

Irda had created a third-party motor insurance pool and set premium rates 150 per cent higher than the level prevailing, as on December 31, 2006, as talks between general insurers and transport associations failed to break the deadlock over the acceptable level of increase in premium rates.

The general insurers, under the aegis of the General Insurance Council, are meeting Irda chairman C S Rao. The finance minister has promised transport associations that the increase in premium would be restricted to 70 per cent.

Irda had formulated the pool scheme as it lifted tariff controls on all remaining general insurance businesses from January 1, 2007.

Rao told Business Standard that Irda would allow insurance companies to revise upwards their premium rates on fire, engineering and motor own damage covers, if they want to offset increased losses seen in motor third party insurance with the reduction in rates. "If they want to charge higher premium, we will allow them to file rates again," he said. The regulations do not allow general insurers to revise products for six months after approval.

General Insurers said that slashing the motor third party premium will make the pool unviable. With a 150 per cent hike, insurance companies felt that the motor pool would only break even. The total motor insurance premium was Rs 8,702 crore in 2005-06.

Rao said, "Insurers will now have to better manage their portfolios and the claims outgo. In a competitive world, if you remove tariffs, the premium rates fall so the insurers will have to control portfolios more efficiently."

He also said insurance companies need to be provided some relief through an amendment to the Motor Vehicles Insurance Act to set a deadline for registering claims and bringing some certainty and eliminate frauds in this business.

The All India Motor Transport Congress had threatened a nationwide strike from 20th January 2007 to protest against the 150 per cent hike in motor third party premium. This was conveyed by AIMTC President in a letter sent to the Finance Minister.

However fearing that a strike would lead to higher inflation, finance minister P Chidambaram intervened and limited the increase of third party motor insurance premium to 70 per cent. The All India Motor Transport Congress (AIMTC) has called off its proposed nationwide Trade Bandh said a release on the ministry website.