Third party (TP) motor insurance refusal rates have seen a big drop with the regulator cracking the whip on insurers refusing to provide covers.
Not only have insurers been barred from refusing to cover a third party motor risk, they have also been asked to sell motor TP products online.
All general insurance companies are now selling motor TP policies through their website. Senior insurance executives said that the regulator has insisted on them selling products via their portals so that it is easier and quicker to purchase.
The Declined Risk Pool for Commercial Vehicles that was in operation from April 1, 2012 will also now be dismantled from April 1, 2016.
Insurance Regulatory and Development Authority of India (IRDAI) said that since the Insurance Act has already called for insurers to complete a certain minimum motor third party business in a financial year.
IRDAI in its Obligation of Insurers in respect of Motor Third Party Insurance Business Regulations, 2015 which specified the insurers to underwrite minimum obligations in respect of Motor Third Party Business.
This was based on a formula taking into account factors like total ‘Gross Direct Premium Income (GDPI)’ under all lines of business of all insurers in the immediate preceding financial year, total GDPI under motor insurance business of all insurers in the immediate preceding financial year among others.
We have been asked not to deny motor third-party-insurance cover to any vehicle owner at any point of time.
There were cases of rejection of proposals especially in commercial vehicle segment since there were increased risks involved in that segments adding to higher claims, said the head of claims and underwriting at a private general insurance firm.
The Insurance Laws (Amendment) Ordinance had introduced section 32D regarding the percentage of TP motor insurance, which needs to be underwritten by each insurer.
It says every insurer carrying on general insurance business shall underwrite minimum percentage of insurance business in third party risks of motor vehicles as may be specified by the regulations.
The new insurer writing motor insurance business licensed to underwrite motor insurance for the first time would be exempted from the application of the obligatory requirement during first two financial years of its operations including the financial year in which its operations are started.
In December 2011, IRDAI had dismantled the commercial third-party motor pool. The regulator had decided to form a ‘declined’ pool, effective April 1, 2012. Under the declined pool, insurers had the right to refuse or decline third-party insurance if it found it too risky an asset to underwrite.
This declined vehicle would then be given a cover by another insurer. However, the risk would be ceded or transferred to the declined pool.
For the remaining vehicles, insurers would be free to underwrite risks independently. This meant a deferential pricing system, based on claims, age, and frequency of accidents, would evolve.
Since the losses in the motor insurance are high due to higher claims being reported every year, there was rampant practice of rejecting covers to vehicle owners.
This was more common for trucks and other such heavy commercial vehicles. Due to the frequency and duration that these vehicles stay on the road, risks associated with claims are much higher. Accidents on roads are among the highest killers in the country.
Added to this, insurers said that unlimited liability for claims in motor TP also lead to rejections. As per Motor Vehicles Act, there is no limit on the amount of compensation paid to people for TP accidents.
This, said insurers, is seeing an increase by 20-30 per cent every year due to higher awards being given from courts.
At present. motor insurance in India continued to be the largest non-life insurance segment business wise.
It reported growth rate of 10.52 per cent in last fiscal (14.15 per cent in 2013-14), as per Insurance Regulatory and Development Authority (IRDAI). However, losses with respect to claims have been high.