The Hindu Business Line : National Insurance may skid on motor risk claims

NATIONAL Insurance Company Ltd has reported a net profit of Rs 71 crore for the year ended 2003-04. But industry sources are raising questions about this number as in their view, the latest profitability figures do not reflect the true picture. They particularly point towards one major aspect of the company's operations — underprovisioning with regard to `motor third party claims'— claims against the insurance company for compensation on an insured motor vehicle.

The company has made a provision of only Rs 80,000 on an average against all claims pending as on March 31, 2004. This is thought to be inadequate.As sources point out, National paid over Rs 1.5 lakh on an average per policy in the last three years. In the event, the company should have provided for this sum in order to arrive at the true figure of surplus from operations, these sources argue.

This would have resulted in additional provision of over Rs 1,100 crore to what has already been provided. This, it is felt, could have wiped out the company's reserves of Rs 900 crore.

Incidentally, the audit committee of the board of National Insurance had reservations initially about the inadequate provisions that were being proposed by the company in the accounts for 2003-04, but later had to relent on its original stand in order that the company could report a profit for the year, it is reliably learnt.

As a matter of fact, finalisation of accounts was "delayed" after the audit committee and the statutory auditors raised questions about them. The management, however, actually agreed to a provision of Rs 270 crore, and that too, spread over three years.

The potential for high average claim per policy, these sources argue, lay in the aggressive manner in which the company has gone about securing motor insurance business. The average premium growth rate in the motor third-party segment was said to be over 45 per cent for the last couple of years in the case of National. The industry average, however, was in the 10-15 per cent range.

For other general insurance PSUs, the emphasis has been on cautious underwriting. No company can afford to do what is often termed as `rogue underwriting'- a reference to proposals that carry unacceptably high levels of risk- these sources mentioned. The National Insurance management, however, insists that the accounts are transparent as its board, the highest authority in the company, approved these.

Compounding the problem of high claim liability in third-party motor claims is the provisions made towards claims arising on account of insurance cover for Reliance Infocomm. The insurance cover relates to the underwriting of loss of mobile handsets along with default in payment by Reliance Infocomm's customers. It is pointed out that no claims have come in after March this year - an assertion that is being disputed.

Also, what has been accounted for, these sources insist, does not take into consideration claims that have been lodged later.

However, Mr Wadhwa had stated earlier that the company had received a sizeable premium volume of Rs 186 crore from the Reliance group in the last fiscal. Mr Wadhwa had stated additionally that the current year too is expected to be good on this count and overall the account will be profitable.