The new provision in the Insurance Ordinance making third party motor cover mandatory has put the major general insurer players in a quandary as the move would increase their underwriting losses, prompting them to seek a hefty hike in the premium payout.
Following the Insurance Ordinance, the regulator Irda has clarified that each general insurer has to ensure that thirdparty cover is made available to the insured in proportion of its market share.
“General insurers have to do the third party motor business mandatorily to the proportion of their market share. If one company has 10 per cent market share, then this cover must also be in that proportion,” Irda chairman TS Vijayan had recently told media in Mumbai.
For each of the general insurers, the third party motor portfolio is a loss making one as the claims exceed the premium they collect. In total, every year the industry is burdened with loss of Rs 7,0008,000 crore on account of this portfolio, impacting their overall profitability.
On an average the claim outgo is almost 130 percent for the portfolio.
“Thirdparty motor premium continues to be a loss making portfolio for us with a loss ratio at 120 per cent. We have raised a demand urged the Irda to significantly increase the premium payout under this segment to contain our losses,” New India Assurance chairman and managing director G Srinivasan told.
Private players are not better off. For instance, for Reliance General Insurance, the segment continues to have a loss ratio of over 130 per cent.
┬а“We provide cover under thirdparty motor cover to the tune of 4 per cent, while our market share is only 3.5 per cent. Still, we do feel that this segment requires proper correction in premium price as this segment is critical for us,” Reliance General Insurance chief executive Rakesh Jain said.
ICICI Lombard, which enjoys a market share at 9 per cent now, feels that measures like declined pool and premium hike will help it contain the losses in the segment.
“Our loss ratio continues to be over 100 per cent under third party motor premium. Though we will come to know of our present market share by March only, I believe that things like declined pool and price hike in premium may help us contain the losses under the segment,” ICICI Lombard head of underwriting and claims, Sanjay Datta said.
Tata AIG General Insurance has demanded the regulator to come up with a white paper on the
“We also have the loss ratio above 100 per cent under the segment even though we continue to provide cover in the segment more than our quota. Hence, we have been demanding the regulator to come up with a white paper on the topic which will help us understand the segment well,” Tata AIG General Insurance chief executive KK Mishra said.
A senior official of a state owned nonlife insurance said, “In spite of our demand for increasing the premium by 40-45 percent, we could get only 12-13 percent following pressure from the transporters’ lobby on the regulator. So, the regulator is likely to come with similar hike in premium when it revises the tariff for next fiscal.”
However, GIC Re chairman and managing director AK Roy said, “general insurers have to be more prudent in underwriting the thirdparty motor business. They have to choose quality risks which shouldn’t generate higher losses.”