Life Insurers Get Three Months’ Extension
Life insurance companies got a breather from phasing out existing traditional life insurance products. They will have three more months after which they can only sell traditional products that meet the new regulations. It remains to be seen whether Insurance Regulatory and Development Authority (IRDA) remains firm with the new deadline of 1...
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.
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.
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.
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.
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...