The Hindu Business Line : Pvt insurers for alternative to motor pool arrangement

According to Mr T.V.S. Prasad, Chief Operating Officer, Indian Motor Third Party Pool, the pool has not settled a single claim so far but just reimbursed the insurers their claims.

S. Bridget Leena

Chennai, Aug. 28 The year-old ‘motor pool’ arrangement, which was brought in to spread the burden of losses relating to third-party commercial vehicles insurance across all insurers, is all but scrapped. An alternative system, which is yet to get the consent of the Insurance Regulatory and Development Authority, is being ushered in.

For over a year, non-life insurance companies have been transferring the premiums they collected from commercial vehicles third party insurance to the Indian Motor Third Party Pool (IMTPP). Now, instead of transferring the premium collected to the pool, they want to retain the premiums and settle the claims themselves. The Rs 2700-crore standing in the motor pool is likely to be returned to the insurance companies.

It has been proposed that each insurance company would create an escrow account and settle claims from it. The pan-industry excess of claims over premium collected would be met by all companies, in the ratio of their market share.

The motor pool arrangement was brought in because the authorities felt that many private sector insurance companies were not accepting commercial vehicle third party insurance proposals, which has been veritably risky. The IRDA wanted the private sector also to share the industry burden.

Having thus been forced to pay for commercial vehicle third party insurance, the insurers felt that they would rather settle claims themselves — faster and cheaper — than through the IMTPP. Indeed, the private insurers wanted the pool to be dismantled, but the IRDA did not agree. A chief of a private sector insurance company, who asked not to want be quoted, told Business Line that the motor pool was not adding value or comfort to any insurer.

Because all insurance companies will contribute towards defraying pan-industry losses, the social objectives of IRDA are met. On the other hand, the insurers feel they would be able to manage the claims better, which is good for customers also as they would get their claims settled quicker.

The IMTPP reacted to this lobby saying: “If you want to settle the claims, why should we be bothered about collecting and managing the premiums.”

Pooling arrangement

For long, insurance claims relating to persons injured or killed by commercial vehicles (trucks) has been a problem portfolio for insurance companies — for, year after year the claims have been far more than premium collected.

To remedy this, the pooling mechanism was brought in. Under this, all general insurance companies, except stand-alone health insurance companies and Export Credit Guarantee Corporation, were required to transfer all the premiums collected from commercial vehicles third party insurance to the IMTPP. The pool is currently managed by General Insurance Corporation of India.

In 2007-08, the pool built up a corpus of Rs 2,700 crore. According to Mr T.V.S. Prasad, Chief Operating Officer, IMTPP, the pool has so far received about 14,000 claims, valued at Rs 200 crore. The operative phrase here is ‘so far’, because typically claims kick in much later.

Mr Prasad estimates that ultimately claims would be about 125 per cent of the corpus.

According to Mr Prasad, so far the pool has not settled a single claim but just reimbursed the insurers for their claims — perhaps because of pressure from anti-pool lobbyists.