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C. Shivkumar

IRDA bid to dispel vehicle owners' fears of hike post deregulation

Bangalore , Nov. 7

Motor and commercial vehicle owners can set at rest apprehensions of big premium increases by general insurers after migration to the free-pricing regime next year.

The Insurance Regulatory and Development Authority (IRDA) has taken the lead and formed a risk pool, where all declined risks could be administered. The risk pool will be called the Indian Motor Insurance Pool (IMIP) with all the non-life insurers, both the public and private sector, becoming members.

The IRDA Chairman, Mr C.S. Rao, said, "This pool will ensure stability of commercial and motor vehicle insurance premiums after deregulation."

The operational mechanism is such that the IMIP would act as an avenue of last resort in the event of vehicle owners' failure to obtain insurance cover from any of the insurance companies. All the insurers have signed an agreement on the formation and administration of the pool. A copy of the agreement, in possession of Business Line, indicated that the General Insurance Corporation (GIC), the national reinsurer, would administer the pool. The risk pool is expected to become operational next year.

The regulator took the initiative for forming the pool after commercial vehicle owners expressed fears of a big hike in premiums after migration to the deregulated regime.

Insurers had indicated of sharp hikes in motor/commercial vehicle premiums, given the high claims ratio in the sector. Claims ratios are in the region of about 150 per cent and are one of the major reasons for large underwriting losses prompting private sector to avoid the sector. Public sector insurers had, therefore, feared the entire portfolio would devolve on them.

However, regulator's interventions ensured that the private sector became part of the pool arrangement. Tata AIG General Insurance Company's Chief Operating Officer, Mr Michael Carlin, said, "The pool is compulsory and we will comply with the provisions of the agreement."

Claims sharing from the IMIP would be on the basis of the respective market share of the insurers. Insurers underwriting on behalf of the pool would be entitled for an administrative commission of 10 per cent of the premium. Even the pool manager, GIC, would have a share, though this would be restricted to the statutorily prescribed 20 per cent reinsurance.

The claims would be settled on a weekly basis and any negative balances would have to be reconciled by payments to the pool manager. Delayed payments for reconciliation would entail a penalty of one per cent, according to the agreement.

Level playing field

The pool is expected to create level-playing field among all the players. The terms of the pool, agreed by all insurers, allowed insurees the option to resort to the pool even if the tariffs quoted by the insurance companies are higher than the pool tariffs.

Accordingly, sources said the arrangement would also function as a ceiling against any sharp increases. In fact, the pool would function as a kind of a stabilisation fund for the markets, they added.

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