The Hindu Business Line : Motor third party liabilities — PSU insurers want pvt sector to share losses

The suggestion was made by the PSU insurers after the Government asked the private refining companies to share the losses of the PSU oil marketing companies.

Bangalore , July 13

IN a bid to cut losses in the motor insurance sector, the four public sector insurers have proposed sharing of third party liabilities with the private sector.

Sources said that the proposal was made to the Government which currently holds the equity in the four non-life insurance companies.

The proposal, they said, would help bring down losses in motor insurance third party liabilities where the claims ratios are running close to about 200 per cent. The sources said that this was one of the major factors keeping the core operations of the public sector insurers in the red.

The private sector has currently abstained from assuming third party liabilities. The private insurers, the sources said, preferred remaining in the low claims sectors of the motor insurance, in particular, the personal transport vehicle own damage sector.

In this sector the claims ratios were under 100 per cent. The private sector has thus ensured that core operations remained positive.

The sources also said that what made the third party liabilities unsustainable was that there was little reinsurance support for the sector. Accordingly, the entire losses in third party motor liabilities were being absorbed directly into the balance sheets for the public sector companies. The sources said these losses were partly cross-subsidised by profits from investments and engineering/fire sectors. Engineering and fire insurance sectors are low claims portfolios.

The sources said that even this cross subsidisation would not be sustainable for long, since the fire and engineering insurance premiums were falling.

The alternative, therefore, would be to ensure that individual portfolios themselves become profitable. However, in the case of third party motor insurance, the sources said, none of the PSU insurers had the flexibility to hike premiums to reflect the high losses, as the third party premiums were administered by the Tariff Advisory Committee of the Insurance Regulatory and Development Authority.

The sources said that all the four insurers had sought complete de-tariffing of the sector though till now neither the regulator nor the Government has conceded their demands. Therefore, the sources said, the option was to work out a mechanism where the private sector could be made to share the losses in the sector.

This, they said, could be either done by creating an insurance pooling or through ceding some of the third party insurance premiums. This mechanism was put forward by the PSU insurers after the Government issued guidelines asking the private sector refining companies to share the losses of the PSU oil marketing companies.

Sources said that the private sector involvement in sharing the losses would also ensure that reforms in the insurance sector would be hastened and complete the de-tariffing of the non life insurance sector.

Such a proposal if pushed through, the sources added, would also ensure that the Government would receive better prices if divestment or equity dilution were taken up at some future point of time.

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