The Hindu Business Line : Declined risk pool for motor cover hits roadblock

While the private sector anticipates losses in the commercial vehicle and third party motor covers, the public sector insurers are apprehensive that deregulation would lead to devolvement of loss-making portfolios on them.

Bangalore , Nov. 21

Attempts to push through a declined risk pool (DRP) for stabilising motor insurance tariffs post deregulation have hit a roadblock.

High-level sources said that at last Friday's meeting between officials of the Insurance Regulatory and Development Authority (IRDA) and chief executives of all the non-life Insurance companies in Mumbai, which included officials of the proposed pool manager (General Insurance Corporation), no firm decision was taken on a date for operationalising the DRP.

Representatives of commercial vehicles operators associations also attended the meeting.

The sources said that although most of the insurers, both public and private, had agreed on the DRP referred to as the Indian Motor Insurance Pool (IMIP), some of the private sector insurers put in new conditions.

The operational mechanism of the IMIP is such that in the event of any two insurers declining to provide cover, commercial vehicle owners would have the option to cover their risk through the IMIP.

The IMIP would act as an avenue of last resort, in the event of vehicle owners' failure to obtain insurance cover.

The pool contribution would have to be shared on the basis of the respective market share of the insurance companies. Similarly, deficits in the pool at the time of reconciliation would also have to be done on the same basis.

The terms of the pool, agreed upon by all insurers, allowed insurees the option to resort to the pool if the tariffs quoted by the insurance companies were higher. Accordingly, sources said the arrangement would also function as a ceiling against any sharp increases.

One of the main conditions put forward was that the pool tariff should be revealed in advance. This tariff has so far not yet been worked out, though the regulator has permitted increases up to 100 per cent. Alternatively one of the insurers who participated in the meeting said, "We have asked for a guess estimate of the losses. This is essentially for us to make provisions in the balance sheet."

The Chief Executive Officer of ASL Insurance Brokers Private Ltd, Mr Jitendra Bhagat, says, "This expectation is obvious, so that while insurers don't make profits nobody will be prepared to incur large losses either."

One of the major reasons for the preconditions was that private sector anticipates losses in the commercial vehicle and third party motor covers. Currently, the bulk of this portfolio is with the public sector and claims ratios are in excess of 150 per cent. In fact, this was precisely the issue that the public sector insurers had also raised with the regulator that deregulation would lead to devolvement of loss-making portfolios on them, with a consequent impact on the solvency ratios. This is also the fear of the private sector, if the pool tariffs were not revealed in advance.

As a result, insurers now anticipate that the migration of free market pricing from next year would take place only in the non-motor segments initially, unless some of their concerns were ironed out.

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