The Insurance Regulatory and Development Authority (IRDA) has put its plans of de-tariffing third-party motor insurance on the backburner. This is due to opposition from public sector general insurers who fear they may be forced to take on most of the burden.

A senior official from IRDA said that while the regulator was working on a roadmap for making third-party motor insurance market-driven, many insurers expressed fears that there may be supply-side issues as private insurers may charge exorbitant premium for high-risk vehicles.

Two components

Motor insurance in India has two components: own damage cover and third-party cover.

While own damage is a profitable portfolio for insurance companies, 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.

So, at present, due to the high claims ratio of around 140 per cent from third-party motor insurance, insurance companies provide them cover from a common declined pool and not from their own books.

IRDA fixes tariffs for third-party motor insurance premiums to ensure that there are no supply-side constraints, that is, vehicles considered high-risk are not denied cover.

A senior official from a public sector general insurance company said that the insurance market is currently not ready for free-pricing as the size of the declined pool is still substantial at around ₹400 crore.

Amendment to the Act

Meanwhile, general insurers have pitched for an amendment to the Motor Vehicles Act to reduce the overall losses in the industry.

Ritesh Kumar, MD and CEO of HDFC Ergo, said that currently there are a lot of leakages in third-party motor insurance because of unlimited liability on claims, no time bar and jurisdiction limitation. Kumar said that an amendment to the Motor Vehicles Act will help resolve this issue.

Related Topics