Third-party (TP) claims are undoubtedly a drain on insurance companies, primarily due to unlimited liability amounts, but should IRDA base the TP premium pricing on more than just engine cc? Your TP premium may be subsidising the commercial vehicles responsible for insurance companies’ losses
The Insurance Regulatory and Development Authority (IRDA) has proposed an increase of nearly 40% in third party (TP) motor insurance for private cars in its draft on revision of premium. If you drive a car that’s below 1000cc (Tata Nano and Maruti Alto, for example), your TP premium may increase by 85%, come April 2013. High increase in premium for entry-level cars may be because these cars are purchased by those who have just acquired their driving skills and the possibility of higher TP claims arising from them. Surprisingly, the hike will be only 1.4% for cars such as Hyundai Santro and Maruti Swift, whose engines are between 1000cc and 1500cc. For cars over 1500cc, including Fiat Punto and Ford Ikon, the hike will be of 43%.
According to Mukesh Kumar, Head-HR, marketing and strategy planning at HDFC ERGO, “The vehicles in the private car segment with engine capacity exceeding 1500cc are extensively used, usually for longer distances and, therefore, result in higher risk exposure. This leads to relatively high TP losses due to which the hike in premium is justified.”
For goods-carrying vehicles, there is a proposed decrease in TP premium for those not exceeding 12,000 kg. There is hike of 107% for those vehicles in the 12,000-20,000 kg range. Mukesh Kumar says, “The proposed hike is still inadequate for this class, judging from the loss experience. Vehicles with higher tonnage are used for longer distances, mostly inter-state. Therefore, the risk exposure is higher.”
According to Dr Amarnath Ananthanarayanan, CEO and MD, Bharti AXA General, “The TP business is long-tailed, with no upper limit on the claim amount and no limit for when the claim can be filed. This makes risk evaluation and therefore, pricing extremely complicated. Overall industry data may be able to throw light on whether the pricing is adequate to cover the risk. The rate increase is high, but necessary, given the unlimited claim amount for TP. We hope the Motor Vehicle Act is changed to limit the claim amount so that the industry can pass on lower TP premiums to customers.”
Own Damage premiums are based on numerous parameters like car model, location, fuel option, security system and even consider personal data like age, marital status and occupation. The question that one may have is whether engine cc is a good enough parameter to decide the TP premium? There may a need to look beyond the car engine cc to decide the TP premium.
For example, geographical area of a private car will have different TP claims experience. For commercial vehicles, there will be more TP claims for those with an all-India permit than those plying in specific areas. Vehicles used 24x7 may have more TP claims. There are specific car makes that may be registered as private vehicles, but are used for commercial purposes and hence have more TP claims. Is it true that going by engine cc is too simplistic?
According to Avadhoot Mavlankar, principal officer, Shinrai Insurance Broking Services, “Use of the vehicle and geographical area can help to underwrite the TP risk properly. Some of my clients’ loaders/excavators and goods-carrying vehicles are registered as public carriers, but ply only within a certain vicinity such as New Mumbai. There is hardly any TP claim. The black-yellow taxis and auto rickshaws have the lowest claim experience in the TP segment.” The proposed hike for auto rickshaw and taxi insurance is 11% and 13%, respectively.
According to an industry source, “Many TP claims from commercial vehicles arise from accidents with trucks and tempos with all-India permits. With such vehicles, the risk is higher than with commercial vehicles restricted to a city. The transportation lobby is strong and they are able to keep the TP premium low.”
Many insurance companies are keen to underwrite specific commercial vehicles that are “good risk” for their business. Third-party motor insurance is the only segment where the tariffs are set by IRDA. The Authority has made use of the data available with the Insurance Information Bureau for the experience period of the Underwriting Years (i.e. Policy Years) 2007-08 and 2008-09 in respect of number of policies, claims reported and amount of claims paid up to 31 March 2012.
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.
All stakeholders are invited to provide their comments on this draft proposal so as to reach the Authority, also by e-mail addressed to email@example.com, on or before 1 March 2013.
Every day's delay in tightening the oversight on ammonium nitrate has had that much of a disastrous impact. Should the government once again fail to learn these lessons now and wait for the next blasts to occur, asks EAS Sarma
Anguished over the loss of lives in the Hyderabad blasts on Thursday, EAS Sarma, former secretary of the Government of India (GoI) has again raised the issue of uncontrolled movement of ammonium nitrate (AN) in the country. Since 2006, the former secretary has been writing letters to the home ministry, the National Security Agency (NSA), the ministry for industrial development and the Andhra Pradesh government about the possible misuse and uncontrolled movement of AN in the country. And yet the government continued to ignore the warnings which led to the blasts in Hyderabad.
Mr Sarma, in a letter written to the prime minister, said, “When I wrote this (he wrote to the home secretary in May 2012 and again in December 2012, about the need to keep an eye on import and movement of AN) letter, I sincerely hoped that someone somewhere in the corridors of power in your government would feel responsible and act. My hope continues to be a mere unfulfilled wish, while innocent lives continue to be lost as a result of the omissions on the part of the authorities.”
The twin blasts ripped through a crowded market in Hyderabad on Thursday, leaving 16 dead and over 120 injured.
“In the past, there were instances of AN trucks missing but there is no information on the outcome of the cases registered! It is possible that the chemical has gone into the hands of the extremist groups. Even one kg of AN in the hands of an extremist could cause havoc and lead to loss of innocent lives as it has been the case with most instances of terrorism during the last several years,” he added.
Referring to the use of AN in Hyderabad blasts, Mr Sarma says, “A stitch in time may have saved nine”. Here are the questions raised by the former secretary to the prime minister...
The way the government has moved in notifying this chemical as an ‘explosive’ first, then issuing the Rules, has not been one driven by a sense of urgency and determination to regulate the use of the chemical. “Every day’s delay in tightening the oversight on ammonium nitrate has had that much of a disastrous impact. Should the government once again fail to learn these lessons now and wait for the next blasts to occur?” the former secretary questioned.
He said, “While post-blast investigations are extremely important and they need to be carried out in a highly professional manner, the pre-emptive measures that I have listed out will help minimise the scope for the anti-social groups to carry out their dastardly acts of terrorism.
Sometimes, a stitch in time could save nine later! Had MHA taken action earlier, perhaps the Hyderabad blasts would not have taken place, as Ammonium Nitrate would not have been available easily."
Properties and even the headquarters of Aftek, the Ranjit Dhuru promoted company are under the hammer since last year. However, the lenders still cannot find a buyer. Aftek is another one of Ketan Parekh's 10 stocks which have self-destructed
Aftek (erstwhile Aftek Infosys), one of 10 chosen stocks of Ketan Parekh that was ramped by the speculator and later came to known as K-10 stocks, is under hammer since last year. Lenders such as Bank of India (BoI) and State Bank of Bikaner & Jaipur (SBBJ) are trying to find buyers for Aftek's property in Pune's Rajiv Gandhi Infotech Park and the company’s head office in Dadar, central Mumbai.
According to sources, till date SBBJ has not been able to find a buyer for the company’s main office ‘Aftek House’, a six storied commercial building with an area of 269.23 sq meters located near Shivaji Park on Veer Savarkar Marg in Mumbai's Dadar area, one of the prime locations in the city.
SBBJ, under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, took over Aftek's head office in February 2012. It then put Aftek House under the hammer in May 2012. The reserve price for the deal was Rs64.44 crore. However, it could not find suitable buyer. (http://foreclosureindia.com/viewAd.php?fid=82336&src=ads/SBBJ-A-mihir.jpg)
The bank, then again issued tender-cum-auction sale notice on 14 August 2012 for selling Aftek House. Despite lowering the reserve price to Rs56.57 crore from Rs64.44 crore, the lender could not find any buyer. (http://bankpropertyauction.com/photos/bpics/706-5452761.jpg)
Similarly, during February 2012, BoI, put Aftek's plot in Pune’s Hinjewadi area under the hammer. The reserve price for the plot admeasuring 9,340 sq meters was Rs32 crore. The auction on 14 March 2012 also failed to get suitable buyer. JVD Recovery Agency, the agent appointed for the auction while confirming the news that the property is still on sale has asked us to give an offer!
Aftek was started by Ranjit Dhuru, a scion of a family that owned large tracts of land in the Dadar area. There are two roads named after the Dhurus, with one sub-area is known as Dhuru Wadi (Dhuru colony). The main architect of Aftek was also staying in his 200-year old ancestral house at Dadar.
Ranjit Dhuru is the chairman, chief executive officer and managing director of Aftek. According to Bloomberg Businessweek, he was paid Rs75.02 lakh as compensation during 2012.
Fate of the K-10 stocks...
Global Telesystems, Zee Telefilms, Himachal Futuristic Communication (HFCL), Silverline, Satyam Computers, SSI, Aftek Infosys, DSQ Software, Ranbaxy and Pentamedia were Ketan Parekh’s favourite stocks. Using the money from Global Trust Bank, Madhavpura Mercantile Co-operative Bank and other sources, Parekh inflated share prices of these companies.
Soon after the 2001 scam was exposed, the rigged shares lost their values so heavily that thousands of people lost their savings. Some banks including BoI also lost significant amounts of money. Global Trust Bank and the Madhavpura Cooperative were driven to bankruptcy.
Barring Zee and Ranbaxy, all other K-10 stocks self destructed. Ranbaxy has been sold to a Japanese company. Global Tele is alive but struggling to continue a viable business. Satyam turned out to be a bigger scam and got taken over. DSQ is defunct. HFCL (name changed to Dynamic Infotel), Pentamedia, Silverline and Aftek Infosys are nominally quoted. SSI promoters sold off its their software business converted the company into a shadowy real-estate company called PVP Ventures.