Insurance companies, which are declining third party insurance, would face severe penalties that would be more onerous than the business they forgone, warns the insurance regulator
New Delhi: The Insurance regulatory and Development Authority (IRDA), has said "severe" penal action will be taken against those general insurance companies refusing third party motor insurance, reports PTI.
"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 we have laid down such companies will be visited by very severe penalties which will be more onerous than the business they are foregone," IRDA Chairman J Hari Narayan said on the sidelines of a CII event.
Third party motor insurance provides cover mainly pedestrians, fare-paying and non fare paying passengers in a vehicle.
Private sector insurers try to avoid writing such policies because of the high claim ratio in the commercial vehicle space. This leads to the public sector companies being hit the most.
Recently, IRDA came out with guidelines for implementation of declined risk pool system. The regulator has laid down a method for transferring risks to the newly formed declined risk pool for third-party motor policies.
As per the guidelines, the declined risk pool would apply to commercial vehicles for standalone third-party liability insurance and no comprehensive motor insurance policy can be settled from the pool.
The size of the pool is likely to shrink to a quarter because of the comprehensive policy going out of the ambit of the pool.