The Hindu Business Line : General Insurance Council may get motor pool ownership

Bangalore, April 7 The General Insurance Council, a grouping of all the non-life insurance companies, is expected to be vested with the ownership of the India Motor Insurance Pool.

Currently, the ownership is yet to be decided. The motor pool is now administered by the national reinsurer General Insurance Corporation of India. But the council’s Secretary-General, Mr K.N. Bhandari, said, “The issue would be finally decided after Ernst and Young submits its report this week.”

E&Y was appointed to look into the issues of ownership and the structuring mechanism for the pool.

Besides, the regulator was not in favour of the national reinsurer becoming an owner of the motor pool. This was on account of concerns that the national reinsurer’s participation in the motor pool would lead to a conflict of interest. The regulator pushed for transfer of the stakes in the four public sector insurance companies to the government in 2002, on similar grounds.

Corporatisation

E&Y, Mr Bhandari said, was examining various models for restructuring the motor pool. The models included a corporate structure, where all the existing members would be converted into equity holders. However, he added, “This proposal is still on the drawing board and it will take some time.” The interim arrangement involved treating the pool as a profit centre.

Corporatisation of the pool could be done after the pool becomes a profitable entity, he said.

India Motor Insurance Pool is a risk sharing pool created by the 12 participating non-life insurers for taking over the motor third party risks. The claims on third party motor liabilities are to be shared among the insurers on the basis of their respective market shares in the business. For the financial year 2007-08, the first year of operations, the motor insurance pool collected premium of Rs 2,800 crore.

Investment portfolio

The entire premium collected was parked in the Government securities, mostly short-term securities and bank deposits for liquidity. Referring to inclusion of equities and mutual funds to the investment portfolio, Mr Bhandari said, “The downside risk will create problems, in the event of claims being lodged.”

The downside risks implied depreciation in the value of the equities and mutual funds that could result in shrinking the provisions and technical reserves. As a result, all the participating insurers in the motor pool favoured the existing arrangement of parking funds in Government securities and bank deposits.

The motor insurance pool’s premium collections this year are expected to increase by another 20 per cent. Claim payouts have not yet begun. But once the payouts begin, industry sources said, the pool would be in a position to create a database of claims settlements. This would allow the pool to enlarge or decrease the technical reserves, the sources said.

Currently, most companies resort to over provisioning as a prudential measure for liability risks. In the event of lower claims, the provisions are written back into profit and loss account and subsequently to the general reserves for improving the capitalisation.