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60% of car insurers make a mockery of IRDA’s rule on third-party insurance

Despite warnings, insurers (mostly private ones) refuse stand-alone third-party insurance for commercial vehicles. And then get away with a mere Rs5 lakh penalty. Another IRDA initiative bites the dust

In December 2011, Insurance Regulatory and Development Authority (IRDA) had prescribed the obligations in terms of minimum premium to be underwritten in respect of stand-alone commercial vehicle motor third party (TP) insurance based on their market share. But, 60% of car insurers have not fulfilled the mandatory obligations for the year 2012-13, and the extent of shortfall is very high (more than 25% of the obligations). Not surprisingly, IRDA order has not stated the number for the “very high shortfall” for the 12 insurance companies who have been penalised for an insignificant Rs5 lakh.
 

The idea with declined risk pool was that insurance companies will have to manage the risk on their own without passing the losses to the pool. If so, why have 60% of the insurers not been able to fulfil the mandatory obligations of TP insurance underwriting? Insurers have the right to refuse or decline TP insurance if it finds it too risky an asset to underwrite, which will be pre-defined with IRDA. Only that risk would be ceded or transferred to the declined pool.
 

Private insurers try to avoid writing such policies because of the high claim ratio in the commercial vehicle space. This leads to the government insurers taking the hit on its books. The four government insurers underwrite nearly 70% of the third-party motor claims in the Indian market. New India Assurance, United India and National Insurance have complied with IRDA requirement. Oriental Insurance Co is the only government insurer present in the list of 12 insurers who have been punished by IRDA.
 

The private insurers with the same offence are as follows: Royal Sundaram, Reliance General, Iffco Tokio, Tata AIG, ICICI Lombard, Cholamandalam MS, HDFC ERGO, Future Generali, Bharti AXA, SBI General and L&T General. Does it mean that private players even with a small market share are eschewing their responsibility and then rewarded with a paltry IRDA penalty which is like a drop in a bucket considering that TP claims can be virtually “unlimited”?
 

What is even more disconcerting is that one year ago at CII (Confederation of Indian Industry) event, the then IRDA Chairman J Hari Narayan had warned car insurers by saying: “Some companies are also declining third-party insurance. They will find it not in their best interest to do so because if companies do not abide by the rules such companies will be visited by very severe penalties which will be more onerous than the business foregone." But, insurers are declining TP insurance requests with impunity. The trivial penalty will only embolden them further.
 

Read - Severe penal action for refusal of 3rd party insurance: IRDA
 

According to one broker, “Private insurers were not interested in underwriting stand-alone TP cover for commercial vehicles earlier due to heavy losses. But, in the last few months we have seen private insurers looking to get less risky commercial vehicle TP cover business and offering commissions. This is due to IRDA mandate of declined risk pool. Trucks with all India permit, dumper trucks are risky business for insurers.”
 

In May 2012, KN Murali, senior vice president & head, motor vertical, Bharti AXA General Insurance, told us:Insurers are given a minimum quota of standalone TP policies that they have to write in their books. If the quota is not met, declined risks pool will allocate business back to insurers to the extent of shortfall. We do not expect insurers to avoid risks; it is also mandated that no insurer can deny standalone TP risk. Customers should not have any issue in getting the cover freely.” But, even Bharti AXA is one of the 12 insurers whose violation has led to penalty.

 

Car insurance: “Higher loss ratio is in diesel car segment”
 

The tariff for TP car insurance is decided by IRDA. The loss ratio for insurers in this category is 180%, which means that for every Rs100 of premium collected, Rs180 of insurance claims were paid. In December 2011 IRDA dismantled the bleeding third-party motor pool and set-up declined risk pool. This is because with third-party motor pool there was no incentive for insurance company to do risk based underwriting or monitoring of claims as the losses were shared as per market share.
 

The TP liability cover, which is mandatory in India, does not provide any benefit to the insured; however, it covers the insured’s legal liability for death/disability of third party loss or damage to third party property. The insurer of the offending vehicle will pay for damages under the section ‘Third Party Property Damages’ up to a maximum limit of Rs7,50,000. For bodily injuries, the cover is “unlimited”. Motor Accident Claims Tribunal (MACT) is a court in which the cases related to road accidents are decided and appropriate compensation is given to the victims or their next of kin.
 

Road Accident: Know your financial rights
 

IRDA has hiked third-party (TP) motor premium by 20%, effective 1 April 2013, but insurers feel that it is less than is what is required to make the TP insurance viable for commercial vehicles. Some estimate need for TP premium to increase by 60%-70% to make it profitable. The transportation lobby in India is strong and they are able to keep the TP premium low.
 

Third-party motor insurance premium hike by 20% is simply arbitrary!

User

COMMENTS

Gopalakrishnan T V

4 years ago

The entire insurance business is a big scam and fraud on the people who include even well educated and well placed persons. Even NRIs' are not spared.Most of the private Insurance agencies have well appointed marketing executives having link with private banks and having the information of customers accounts.They try all their marketing gimmicks learned from unprincipled Management Institutions. Ethics and values are seldom appreciated nor taught. Greed has become the core business objectives.These marketing people trap people by offering products which are not understood by themselves nor by their institutions. The objective is to mobilise some funds against issue of some policies the details of which are not intelligible to the best of intellectuals . After paying some installments of premium, if one tries to know the fate of the policy, the real shock comes.The value of invested money is less than the half of the premium paid and the agents who sold the products are either not traceable or not answerable for the loss of value. The institution which has come out with the product will give such an explanation that they have all intentions to protect the investors' interest but the market has behaved otherwise.They will also advise you to invest more to make up for the losses already incurred. Investors silently suffer and about IRDA's role investors are ignorant as It has not established itself as an institution to protect Insurer's interest. Money Life will have a major role to play to set right the Insurance Business and bring in confidence among investors.

REPLY

Param

In Reply to Gopalakrishnan T V 4 years ago

how is this rant related to this article on third party insurance?

Gopalakrishnan T V

In Reply to Param 4 years ago

Entire insurance is a fraud and Auto insurance cannot be an exception. Premiums are hiked every now and then and when the issue of any claim arises,then one will know the true colour of the Insurance Company and how they take the claimants for a nice ride.Less said about the public sector insurance companies the better.

Gopalakrishnan T V

4 years ago

The entire insurance business is a big scam and fraud on the people who include even well educated and well placed persons. Even NRIs' are not spared.Most of the private Insurance agencies have well appointed marketing executives having link with private banks and having the information of customers accounts.They try all their marketing gimmicks learned from unprincipled Management Institutions. Ethics and values are seldom appreciated nor taught. Greed has become the core business objectives.These marketing people trap people by offering products which are not understood by themselves nor by their institutions. The objective is to mobilise some funds against issue of some policies the details of which are not intelligible to the best of intellectuals . After paying some installments of premium, if one tries to know the fate of the policy, the real shock comes.The value of invested money is less than the half of the premium paid and the agents who sold the products are either not traceable or not answerable for the loss of value. The institution which has come out with the product will give such an explanation that they have all intentions to protect the investors' interest but the market has behaved otherwise.They will also advise you to invest more to make up for the losses already incurred. Investors silently suffer and about IRDA's role investors are ignorant as It has not established itself as an institution to protect Insurer's interest. Money Life will have a major role to play to set right the Insurance Business and bring in confidence among investors.

Ashit Rasiklal Shroff

4 years ago

Not only for Commercial Vehicles Insurers are refusing Third Party Insurance but even for Private Cars. Recently a friend of mine wanted a third party only cover since his comprehensive cover was expiring & he was buying a new car , the Insurance Company refused.Even the agents are not interested to take any requests for only TP Cover.

REPLY

Param

In Reply to Ashit Rasiklal Shroff 4 years ago

i can suggest a way out - ask him to have the IDV marked down to a very low number, which will bring down the own damage component to acceptable level.

raj

In Reply to Ashit Rasiklal Shroff 4 years ago

You have good point. Third party insurance rates are under tariff and inexpensive. Insurance companies have huge liability as MACT have no-limit to give compensation for accidents. Comprehensive insurance is where insurers make money and can pad-up for the lower third party insurance premium. TP insurance is tough for insurers and good deal for customers.

Life Insurance: Max Life Forever Young Pension Plan

Two options with different equity exposure

Max Life Forever Young Pension Plan is a unit-linked pension plan with two fund options—The Maximizer Fund offers higher equity exposure in the 20%-60% range, whereas the Preserver Fund will invest 10%-35% in equities. For the Maximizer Fund, the minimum guaranteed maturity benefit will be 101% of all the premiums paid; it will be 110% for the...

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