Money & Banking

Motor third party cover: IRDAI’s panel moots changes in fixing obligation of insurers

G Naga Sridhar Hyderabad | Updated on April 24, 2020 Published on April 24, 2020

A working group formed by the Insurance Regulatory and Development Authority of India (IRDA) has suggested significant changes in fixing the obligation of insurers for the mandatory motor third party (MTP) cover.

In its report submitted to the regulator, the expert group suggested that the MTP obligation of each general insurer be fixed on the basis of the number of vehicles insured/uninsured instead of the premium derived from the MTP insurance business.

“The MTP obligation should be a function of the number of vehicles insured/uninsured,” the group said, while suggesting a simple and equitable formula for calculating the obligation of insurers.

Exemption

To encourage new players, the new insurer (writing motor insurance business) licensed to underwrite motor insurance for the first time may be exempted from the obligatory requirement during the first two financial years of its operation.

A motor third party credit system in line with the carbon credit system may be introduced for the first two years, the group suggested.

According to the regulator, the need for review of the existing system of MTP arises because in the present system the current MTP obligation is not known to the insurers in advance, as the audited data required for the formula is not available till the middle of the financial year.

This is making it difficult for the insurers to have a well set out plan for MTP obligations in advance. Therefore, a standard and static formula which will help the insurers to self assess their obligation at any point in time in the year without any regulatory intervention, is needed.

Uninsured

According to Insurance Information Bureau of India (IIBI) data, there are 22 crore vehicles plying on the roads in India. Of these, 58 per cent are uninsured.

The uninsured vehicles largely comprise two-wheelers, and this is quite obvious since 70 per cent of the total vehicles in India are two-wheelers. Of these, nearly 63 per cent remain uninsured.

Private cars are largely insured. The number of uninsured private cars is quite low at around 10 per cent.

However, the number of uninsured vehicles in the commercial vehicle (CV) category is on the higher side, at around 45 per cent.

The percentage of vehicles which do not renew their insurance after the first year is menacingly high at 52 per cent on an average.

KEYWORDS: IRDAI, Motor third party cover, general insurance, vehicle insurande

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Published on April 24, 2020
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