UII, NIC to pare exposure to motor covers

United India Insurance (UII) and National Insurance Co (NIC), two among the four state-owned general insurers, have decided to reduce their exposure to commercial vehicles so as to improve their bottomline during the current financial year.

B Chakrabarti, chairman and managing director, NIC, told Business Standard that the company expects to reduce its exposure to motor portfolio by 20 per cent this year as the claim ratio (net incurred claims as a proportion of premium income) was 150 per cent in 2004-05.

M K Garg, chairman, United India Insurance, said that the company has taken conscious effort to reduce its exposure to loss-making portfolios such as motor and health segment while announcing the 2004-05 results. The trend is to continue.

"The commercial vehicles are prone to accidents compared with passenger cars segment; the former involves larger claims due to unlimited third party liability," said, a senior general manager of a public insurance company.

United India Insurance reported net incurred claims worth Rs 1,196 crore under its motor insurance portfolio for 2004-05 compared with Rs 1,166 crore in the previous year.

The company registered a 19 per cent fall in net profit to Rs 307.71 crore for the financial year ending March 31, 2005, compared with Rs 380.44 crore in 2003-04.

In the case of National Insurance, rating agency Icra has downgraded the company to iAA+ from iAAA, citing a sharp decline in the company's profitability.

Both private and public insurance companies are mandated to cover commercial vehicles. However, public general insurers charge private insurers of sidestepping commercial vehicle insurance.

C S Rao, chairman, Insurance Regulatory and Development Authority (Irda), said that it was compulsory for public and private insurance companies to insure commercial vehicles. The regulator has taken action against public or private insurers denying cover for commercial vehicles, he added.

Rao pointed out that public general insurers need to find alternative ways to manage their portfolios better and the tariff fixed is the floor level and nothing prevents them from charging higher premium for higher risk.