The Insurance Regulatory and Development Authority has created a Motor Third Party Declined Risk Insurance Pool.
It provides mandatory third party cover for commercial vehicles.
The existing motor third party pool will be dismantled with effect from March 31, 2012. The motor third-party pool was created in 2007.
In an order issued on Friday, IRDA said the existing motor third party pool is eroding interest of the policyholders besides causing financial stress to the general insurance companies.
The newly-created declined pool would be applicable to all commercial vehicles for standalone third party insurance which is mandatory as per Motor Act.
No proposal for insurance cover from commercial vehicle owners should be rejected by any general insurer. The General Insurance Corporation would act as the pool administrator.
IMPLICATIONS
When contacted Mr J. Hari Narayan, Chairman, IRDA, told Business Line that in the medium term, the premium rates for commercial vehicle owners were expected to come down.
“I hope, with the action I have taken today, the claims in this segment will be managed better which facilitates lower premium rates,'' he said.
All general insurers would now have to be more responsible for the policies they underwrite as well as to the industry because of the new pool, he added.
For industry, the decision would mean an infusion of over Rs 7,493 crore which is the expected ultimate loss for Motor Third Party Pool during 2010-11 as per IRDA data.
“The insurance companies should take responsibility even for the losses and share them,'' Mr Hari Narayan said.
A method based on sound actuarial principles has been worked out by the regulator.
As for the provisional figures, the public and private general insurers may have to bring in Rs 4,000 crore each to dismantle the poll by honouring all commitment.
A senior official of ICICI Lombard said the industry has been preparing for providing for losses by maintaining reserves.