The Hindu Business Line : Partial detariffing for motor insurance under study

FACED with repeated pleas from major public sector general insurers, moves to de-tariff motor insurance have commenced in right earnest. Sources said that Insurance Regulatory and Development Authority (IRDA) had set up a committee headed by Mr Justice T.N.C. Rangarajan to ascertain the impact of motor liabilities, including third party, on the insurance companies, and for initiating the process from a tariff to a non-tariff regime.

Third party covers are part of the statutory liabilities to be provided by the all general insurers in the country.

This committee in its report had recommended the setting of a sub-group for analysing the data before any decision on the modalities for de-tariffing could be taken.

This data was to draw up rating parameters for the domestic general insurers consonant with the international practises.

In the meanwhile, the sources said, some proposals for partial de-tariffing were in the process of being worked out. This included splitting the motor insurance into separate components for tariff purposes.

Mr H.S. Wadhwa, Chairman and Managing Director of National Insurance Company Ltd, told Business Line that such a proposal was indeed being considered.

Mr Wadhwa, who is also the Chairman of the General Insurance Public Sector Association and an ex-member of the committee said, "We are looking at separate premiums for both the components, before a full de-tariffed regime." He was not prepared to indicate any time frame for the introduction of the detariffed regime. However he said, "It could begin very early."

The sources said that introduction of the proposal would imply, that vehicle owners would be levied separate premiums for the own damage (OD) and third party (TP) components, respectively.

Such a regime would also imply that loading for claims in either of the components would not impact the other. This implied that if the claims were in the OD component, only this premium would be raised.

At present, however, the regime is that where there is a comprehensive insurance cover, the entire premium increases in the event of claims being made in one of the segments. Besides, the sources said that the OD segment has traditionally been a profitable one.

The move to de-tariff comes after the four public sector insurers repeatedly brought to the notice of the IRDA and the Government about the need for hiking premiums in motor insurance. This was because this sector has been virtually bleeding all the four companies.

The claims ratios in motor insurance are now over 150 per cent. The bulk of these claims are from commercial vehicles, in particular TP liabilities.

All the four companies have been pushing for an increase in premiums to correct for these mounting losses, though IRDA has still not permitted it.

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