The Hindu Business Line : Entire motor spectrum to be detariffed

MOTOR insurance premiums are likely to be completely detariffed by the next fiscal in line with the demands made by public and private sector general insurers.

Sources said the initial proposals were to detariff only a small component of motor insurance - own damage. However, the sources said, that some of the major players were not prepared to accept this piecemeal detariffing.

Besides, the Insurance Regulatory and Development Authority (IRDA) is not opposed to detariffing. This is especially in a situation in which the motor insurance markets are expected to show big increases in the coming years in line with growth in automobile sales.

Motor insurance comprises at least 40 per cent of the overall volume of non-life business. This business has been growing at a rate of 20 per cent. Although there are at least 65 million vehicles registered with all the transport authorities in the country, only about 26 million are insured. This discrepancy is partially due to the PSU insurers tightening grip on high loss customers during the last two years.

Pvt insurers reluctant

Motor insurance is a high-loss risk business with claims to premiums collected ratio of over 150 per cent. For this reason, private sector insurers have been reluctant to enter the sector. Consequently, the public sector insurers has sought a level playing field since the bulk of high claims portfolios is currently vested with the PSU, eroding their competitive strengths, the sources said.

Detariffing was meant to pave the way for a larger private sector presence in the motor insurance business across all sectors. Private sector presence in motor insurance is restricted only to cars where the claims ratios are under 100 per cent.

Most of the private sector has been avoiding the commercial vehicle and third party liability business in motor insurance sectors where claims are the highest, the sources said.

Detariffing the entire motor insurance sector, the sources said, would most likely result in lower tariffs in low claims sectors, especially the cars and personal transport segments.

However, in the case of high claims segments, tariffs were likely to steeply increase - especially in third party covers.

Premiums on CVs

This implies that premiums for commercial vehicles (CVs) will show large increases in the coming years reflecting the losses in the sector.

The pressure to detariffwas also driven by falling returns on investments and the consequent pressures on profitability of the fourpublic sector general insurance companies - Oriental Insurance, New India Assurance, United India Insurance and National Insurance.

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