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C. Shivkumar

Premiums collected as third-party risk cover would be credited to the pool. All claims would be administered from the pool.

Bangalore , Dec. 9

FACED with resistance from both public and private sector insurers to offer motor vehicle third-party risk cover, the insurance regulator is now mulling the setting up a separate pool.

Sources said the Insurance Regulatory and Development Authority (IRDA) already sounded out some of the insurers for motor vehicle third-party risk pool, though the modalities are yet to be worked out.

All the premiums collected as third-party risk cover by the non-life insurers, public and private, would be credited to the pool. All claims would be administered from the pool.

The proposed system was almost identical to what is currently adopted in Japan where the motor vehicle third-party risks are administered through a government fund.

Bleeding portfolio: The sources said the new mechanism was considered since almost all non-life insurers have begun avoiding third-party risk cover. Insurers treat this as a bleeding portfolio.

This is because the claims ratio in the third-party risk cover is currently in excess of 200 per cent of the premium collected. This was particularly so in the case of the commercial vehicles.

The sources said public sector insurers in the past had used the more profitable portfolios such as fire and investment returns to cross subsidise the losses. The private sector, on the other hand, had preferred to stay away from the portfolios since it was loss making.

Besides, unlike the public sector, a few of the private sector non-life insurers had large investment surpluses to cross subsidise loss-making risk portfolios.

To impact solvency ratio: But with investment returns falling and competition intensifying, even public sector insurers have begun staying away from offering third-party risk covers, the sources said.

This was because large losses on the portfolio would directly impact their solvency ratios, through a weakening of their respective capital.

What also made the situation difficult this year were the losses incurred by the insurers through natural disasters.

Higher claims: As a result, the sources said, even on fire portfolios, which included natural disasters, floods and cyclones, the claims were high. This year, claims on this portfolio was in the region of about 70 per cent, they added, though traditionally it was in the region of about 35-40 per cent.

This would now mean that insurers would have to capitalise further for maintaining solvency ratio of 150 per cent over the insurable liabilities prescribed by the IRDA.Given this kind of a situation, neither the private nor the public sector was keen on acquiring loss-making portfolios into their books.

One private sector insurer said: "The pool is welcome, but the fundamental concerns still remain unresolved. We had asked for capping of liabilities in the case of third party. Unless that happens even a pool mechanism is not a solution."

The sources said insurers had repeatedly sought a free pricing regime to contain the losses. The IRDA's roadmap for de-tariffing was unclear on this aspect, the sources added.

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