The Hindu Business Line : Lower tariff hike to stress motor insurance pool

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Bangalore Jan. 25 The India Motor Insurance Pool is faced with the first test, 25 days after inception, with the roll back in the tariff hike by the Insurance Regulator and Development Authority (IRDA).

The IRDA had effected hikes close to 150 per cent coinciding with the commencement of the IMIP. Under pressure from the All India Motor Transport Congress, the regulator had whittled down the tariff hike in the third party motor risk covers to just 70 per cent.

Regulator Guidelines

But only few private sector insurers are comfortable with the rollback.

Spokespersons for the largest private sector insurance company, ICICI Lombard Insurance Company Ltd and the second largest Bajaj Allianz General Insurance Company Ltd declined to comment on the subject. Instead they said: "We will abide by the regulator's guidelines."

Moreover, none of the insurers has any option other than continuing with the pool. Instead the sources said that private sector has now taken the stand that they would participate in the risk pool only for commercial vehicles. They would not participate in the pool for non-commercial motor vehicles.

However, this is exactly what the public sector insurers also want. This is because currently most of the motor vehicle third party losses on account of high claims came from the commercial vehicles sector. Third party claims are about 180 per cent of the premiums collected. Close to 85 per cent of the losses are estimated to come from the commercial vehicles sector.

Sources said the private sector insurers now also want changes in the underwriting guidelines after the tariff rollback.

The changes effectively imply that the insurance premium reduction for motor vehicles after the introduction of free market tariffs would be limited or may not even take place. Such a system would ensure that the cross subsidy mechanism would remain intact. Cross subsidies were forecast to disappear after the migration to the free pricing regime.

Premium reduction

"That will not happen now," the sources said. Among the options available before the insurers was to ensure that the own damage (OD) premiums remain at current levels or restrict the reduction in the premiums. This was because insurers, the sources said, would attempt to recover the losses incurred through OD premium.

This was to ensure that the motor insurance portfolio itself remained at break-even levels, instead of incurring losses. But the flipside is that the private and the public sectors still have the flexibility to effect increases within the regulator's guidelines. The regulator permits a loading of up to 100 per cent on premiums depending on customer losses. For customers, hopes of premium reductions would remain distant dream.

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