General insurers are planning to make a strong pitch to the insurance regulator to de-tariff third-party motor insurance premiums as they will now have to compulsorily insure high-risk vehicles.

This comes as the Insurance Regulatory and Development Authority of India (IRDAI) last week dismantled the declined pool out of which vehicles considered to be high-risk were provided cover.

Incidentally, the Insurance Amendment Act, passed by Parliament last year, has mandated insurers to complete a certain minimum motor third-party insurance business and ensure that no vehicle owner is denied a cover.

Sanjay Datta, Chief of Underwriting, Claims and Reinsurance at ICICI Lombard General Insurance, said that the pool has been dismantled as it had shrunk in size and insurers are retaining most of the business on their books.

In the last three years, the size of the declined risk pool had shrunk to ₹350-400 crore from almost ₹5,000 crore, said Rajiv Kumar, Head of Operations and Corporate Planning, Universal Sompo General Insurance.

Motor insurance in India has two components: own damage cover and third-party cover. The latter is compulsory in order to cover third-party damage in terms of property or life.

The third-party motor insurance segment is making huge losses for insurers, with claim ratios of around 150 per cent, as it is the only segment where the tariff is fixed by the regulator.

Vijay Kumar, Chief Technical Officer, Motor, Bajaj Allianz General Insurance, said that for third-party insurance, the market needs to move to market-based pricing as the onus is on the insurers to provide a cover to even high-risk vehicles and the premium for the segment is inadequate.

He added that in due course his company would make a representation to the regulator for de-tariffing premiums in third-party motor insurance as is the case with the own damage segment. In the own damage segment, premiums became market-driven from 2007. Premiums actually went down for a majority of the vehicles.

Rates may rise

But, the rates are likely to go up from April this year, as the IRDAI has suggested a 30 per cent increase in third-party motor premium based on a predetermined formula which factors the loss ratios for insurers, inflation and higher awards by judiciary.

However, most insurers believe that the proposed hike in premium is inadequate to cover the losses in third-party motor insurance.

KG Krishnamoorthy Rao, MD and CEO, Future Generali India Insurance, said that despite annual increase of third-party premiums by the regulator, the losses under motor third-party portfolio has not come down; it has actually been on the rise as the award amounts are increasing substantially.

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