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To plug the problem of a large number of vehicles running without cover, the Insurance Regulatory Development Authority is pitching to make motor third party insurance policies valid for two years, from the existing one-year term.
With third party motor insurance a hugely bleeding portfolio, general insurers should welcome the move. It is a win for customers, too, as long-term policies could be priced lower, with insurers factoring in the no-claims discount, and also relieve them from the burden of the annual renewal. .
“We have been asking the regulator to allow longer term policies, particularly for motor vehicles, for a while now. The regulator had some concerns regarding annual increase in premium, accounting treatment and creation of premium reserves for such policies. So, IRDA said it make a beginning with a two-year motor third party policy,” said the CEO of a public sector general insurance company.
IRDA is working on a draft two-year motor policy.
Motor insurance covers one’s own and third party damage to property or life. Vehicle owners have the option of choosing between a standalone (third party) and a comprehensive cover. Though it is mandatory for vehicles to have an insurance cover, it is estimated that nearly 70 per cent of two-wheelers and 35 per cent of four-wheelers are uninsured.
According to K. G. Krishnamoorthy Rao, Managing Director and CEO of Future Generali, there is a 40 per cent drop in renewal of motor insurance policies in the second year for two-wheelers, while for three-wheelers it would be around 20 per cent. This poses a huge structural problem for insurers.
CUT LOSSES
General insurance companies, which are bound to settle motor third party insurance claims with no cap on liability, paid out 75 per cent more than the premium they collected on account of claims under the third party motor pool last year.
The annual liability on account of third party motor insurance is around Rs 10,000 crore for the general insurance industry.
Sanjay Datta, Chief of Underwriting and Claims, ICICI Lombard General Insurance, said policy renewal at longer intervals would help insurers cut losses as it would ensure that customers don’t let their policies lapse, particularly in the two-wheelers segment where the amount is low and renewals are poor.
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