Claims proposed to be regulated to lower losses.
Your third-party motor insurance cover is set to cost more. Facing losses, general insurance companies have approached the regulator on seeking an increase in premium rates for these policies, which are mandatory. If the regulator agrees, not only will the premium go up but even third-party claims could be regulated.
Companies have already held talks with transporters to raise the premium for the only segment of the business that is regulated. Now, the companies have started discussions with the regulator – Insurance Regulatory and Development Authority (Irda). A senior official in the regulatory agency told Business Standard the companies have proposed to increase the premium by 75-100 per cent.
“There has been discussion on the issue. But the quantum of increase that has been proposed is not feasible. Industry is yet to come up with a formal proposal,” the official said.
This will be the first revision in over three years, with the last increase being of the order of 70 per cent.
“What we had asked for was a 150 per cent increase but we had to settle for much less. But given the claims ratio, the business is unsustainable in its present form,” a source privy to the discussions told Business Standard.
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To ensure the premium reflects the market reality and insurers do not have to seek government’s intervention every time they want to increase the premium rates, companies are also contemplating an inflation-linked premium structure through which they can opt for an annual hike.
“The remedy to reduce high claim is to charge the right price. The price was so far borne completely by the public sector companies. But if the prices are not enough, the solution is to either charge actuarially-determined prices, which can be governed by the regulator, or open up so that companies will know what to do. The industry has proposed that Irda prescribes obligations on this, so you can always cherry-pick, or may be, pay a penalty and not underwrite the business,” said the chairman of a public sector insurance company.
Apart from increasing the premium, insurance companies are also pitching for changes in third-party claim settlement. For instance, there is a suggestion to amend the Motor Vehicles Act, whose review is underway, to cap the liability.
Within this, insurance companies are of the view that liability of up to a specified amount, say Rs 5 lakh, be covered through the regulated premium. After the specified level, the insured would have to purchase a top-up cover at a market-determined rate.
Another suggestion is to provide for discussion between the insurer and the affected party to arrive at the settlement amount in case of accidents that do not cause grevious injury or those that result in death. If either party does not agree to the settlement amount, they can approach a designated agency, it has been suggested.
On the issue of premium, the exact quantum will be decided shortly. “The industry and the transporters have not settled on one rate. Private players want the pool (for sharing of premium and losses) to be abolished. The claim ratio in third-party motor is unsustainable,” said S L Mohan Secretary General of the General Insurance Council, the industry group which also has representation from Irda.
At present insurance companies have a claims ratio of over 125 per cent. This means they are paying more in claims than the premium collected by them.
When the general insurance business, including motor, was freed from the controlled rate regime, the regulator and companies had agreed to stick to a regulated structure for third-party insurance, which is mandatory under the Motor Vehicles Act. The premium for the own-damage part, which covers theft and damage due to accidents, is no longer regulated.
In case of third-party insurance, the premium earned by all companies is pooled and the losses are split proportionately.