Third-party motor pool may be withdrawn

The commercial third-party motor pool may be dismantled. This follows four public sector general insurance companies being given a ‘conditional’ nod, in a meeting with the regulator recently.

The move would bring relief, particularly to smaller private general insurance companies, since by virtue of a pool, losses on account of the commercial third-party motor portfolio, are shared among all general insurance players, according to their total market share.

However, the riders are stringent. First, general insurance players are demanding a 70-80 per cent increase in commercial third-party motor premiums. Second, they have also asked for freeing prices in the commercial third-party motor premiums, which are now set.

“At the moment, the portfolio must be made viable, and to do that, the premiums rates must be increased 70-80 per cent. Only then can we think about dismantling the pool,” said a senior official at Oriental Insurance Company.

The motor portfolio, which accounts for about 43 per cent of the total premiums, has always been the Achilles Heel of general insurance companies in India, owing to inherent commercial-third party losses. The claims ratio is estimated at 150 per cent. This means for every Rs 100 collected as premium, the claim paid is Rs 150.

Total premiums collected by general insurance companies stood at around Rs 44,000 crore in 2010-11. Of this, motor premiums accounted for Rs 18,000 crore. Typically, third-party liability accounts for 35 per cent of total motor premiums.

To distribute the losses among insurers, the Indian Motor Third Party Insurance Pool was created in April 2007 for commercial vehicle third-party insurance businesses. The share of each insurer was decided according to its overall market share of all lines of business.

While private general insures were lobbying for dismantling the pool, the four state-owned players, New India Assurance Company, Oriental Insurance Company, National Insurance Company and United India Insurance Company, which control 59 per cent of the market, were against the move.

“If the pool is dismantled, private players would be selective, especially in the commercial space, and this burden would come to government-owned insurers. Hence, the pricing should not be tariffed, and should be freed. These are the main issues which need to be discussed before taking any decision on the pool,” said a National Insurance Company official.

The change in stance comes after the four-state owned insurers met finance ministry officials recently. The Insurance Regulatory and Development Authority (Irda) had also discussed the issue with the chiefs of the four state-owned insurance players late last month.

Acting on an independent report by the actuary of the UK government, Irda may increase the reserve, or provisioning, requirement for the third party commercial motor portfolio of general insurance companies to 175-205 per cent from 153 per cent. If implemented, the industry may have to bring in additional capital of Rs 3,500-6,000 crore.

This comes after the industry took a hit of Rs 10,250 crore last year, on account of commercial third-party motor pool losses.

Only four of the 24 private general insurance companies in the country reported profits in 2010-11, on account of higher provisioning on third-party motor pool losses. To provide relief to insurers, third-party premiums were increased by around 10-60 per cent, which insurers say was not sufficient.

http://business-standard.com/india/news/third-party-motor-pool-may-be-done-away-with/457091/