The Insurance Regulatory and Development Authority (IRDA) has marginally reduced the provisioning that general insurers have to make for third party motor insurance.

In a circular, IRDA said, “Based on the submissions of the committee, the Authority hereby advises that the ULR (ultimate loss ratio) of the declined risk pool for the year 2013-14 be fixed at 175 per cent.”

The provisioning was earlier estimated by the regulator to be at 210 per cent for the previous year. IRDA said a special committee formed by the regulator has recommended the ratio for what is known as the Declined Risk Pool.

Under the Indian Motor Vehicles Act, all vehicles plying must have third party insurance cover (covering third-party damage in terms of property or life).

However, due to the high claims ratio from commercial vehicles and the reluctance on the part of insurance companies to provide them cover, the regulator has created an arrangement in the form of a declined pool whereby they jointly meet the liabilities.

This also reduces the pressure on public sector insurance companies which were otherwise compelled to provide the cover and run up major losses. Currently, the size of the Declined Risk Pool is around ₹400 crore.

KG Krishnamoorthy Rao, MD and CEO of Future Generali Insurance, said the reduction in provisioning by 35 percentage points means that the claim provisioning for insurers will see a reduction and there will be slight improvement in profitability.

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