"There is a strong review demand from insurers for an upward revision of about 25 per cent in the third party motor premium rates for commercial vehicles. Besides the claim experience, a host of factors such as inflation, rising income, rising management expenses are considered for deciding the premium rates. There is a great demand for introducing service providers for doing third party motor insurance business, this will further increase our cost," said KN Bhandari, secretary general of General Insurance Council (a body of non-life insurance companies).
Third party motor insurance cover is mandatory under the Motor Vehicle Act. Third party insurance covers unlimited pay compensation for death, bodily injuries, and damage to the property of the third parties other than insured, up to a limit.
Under this policy, the insured is treated as the first party, the insurance company the second party and all others would be third parties. This insurance protects the insured from legal liabilities following an accident involving his/her vehicle.
Third party motor insurance business was always a loss making business for insurers and till a year ago was mostly written by the public sector general insurers.
In April 2007, the Insurance Regulatory Development Authority directed all insurance companies to have pooling arrangement for underwriting the third party motor insurance business for commercial vehicles.
The business done by the motor pool is shared among insurers in terms of their total market share (in other words the total gross premium underwritten). The IRDA also increased the premium rates by 70 per cent for commercial vehicles.
"However the increase in premium rates for third party cover for commercial vehicles has been inadequate which has been proved by a claims ratio of 122 per cent by the motor pool," noted Bhandari.
"We had to estimate the claims to arrive at the loss ratio as it takes normally 9 months to report a claim after an accident. Upto 29th February 1600 claims had been reported to the motor pool and many claims are likely to come up in future. The premium in the pool is in excess of Rs 2400 crore," said a source.
Insurers prior to detariffing were offering uniform rates set by the Tariff Advisory Committee for own damage covers and the mandatory third party covers. However with the advent of detariffing, the premium rates for own damage covers have been reduced by 40 per cent while the premium rates for third party motor insurance has been increased for 70 per cent for commercial vehicles.
"Detariffing has corrected the distortion that is customers paying a higher own damage premium and lower third party premium," said Bhandari.
Insurers have appointed Ernst & Young to advise on the pool structure, legal aspects, taxation issues for the pool.
For the year 2007-08, insurance companies have underwritten a total gross premium of Rs 28130 crore in motor. Of this, the four public sector insurers namely New India Assurance, Oriental Insurance, National Insurance and United India insurance have contributed Rs 16,900 crore while the remaining Rs 11230 crore has been underwritten by private insurers.
