Despite general insurers reluctantly agreeing to insure commercial vehicles for third-party motor insurance, the insurance regulator is not considering scrapping the common pool where vehicles that are denied insurance are covered, a senior Insurance Regulatory and Development Authority (IRDA) official said.

A senior regulatory official said, “Dismantling the declined pool and free-pricing have been the main requests from the industry but we have some concerns as most of the commercial vehicle risk is currently being underwritten by public sector insurers.”

The declined risk pool allows insurers to transfer risks they are unwilling to have on their books to a pool administered by General Insurance Corporation, India’s only re-insurer. In 2011, the declined pool replaced the third-party motor insurance pool, which was set up in 2007 to stem losses that were bleeding general insurers. Motor insurance in India consists of own damage cover and third-party cover. While the former is a profitable portfolio, third-party insurance, which is mandatory for every vehicle in India, is highly unprofitable as the liability for insurers is unlimited and the premium is fixed by the insurance regulator. Recently, TS Vijayan, Chairman of IRDA also said that the regulator is not considering de-tariffing the premiums and the maximum tariff that can be charged will continue to be prescribed by the regulator.

But the declined pool’s size has shrunk to around ₹200 crore from ₹3,500 crore in 2011.

The reason for this shrinkage is mainly because public sector general insurance companies have been underwriting commercial vehicle risk on their own books.

Supply-side

Amitabh Jain, Head-Motor Underwriting and Claims, ICICI Lombard, said that industry-wide there is an understanding that insurers cannot deny third-party cover, which has to be mandatorily made available .

Jain said the industry has been discussing scrapping the pool as supply-side constraints have been taken care of, and each insurer chooses a particular segment of vehicles because of which most firms meet mandatory quotas. Insurers are given a minimum quota of standalone third-party policies that they have to underwrite in their books. If the quota is not met, declined risks pool will allocate business back to the insurers to the extent of the shortfall.

Roopam Asthana, MD, CEO of Liberty Videocon General Insurance, said insurers have been aggressive in getting third-party business to meet their requirements for the mandatory quota. According to recent estimates of the regulator, the third-party motor insurance industry has also seen a fall in loss ratios at 175 per cent in 2013-14 as against 210 per cent last year.

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