Non-life insurance companies particularly private insurers refuse to issue third party motor insurance and push comprehensive own damage cover to the policyholders.
IRDAI has come out with a draft regulation in which it has mandated non-life insurance companies to underwrite third party motor insurance. Third-party motor insurance is mandatory in India.
Non-life insurance companies, particularly, private insurers refuse to issue third party motor insurance and push comprehensive own damage cover to the policyholders. Motor third party insurance cover is a loss making business for non-life insurers due to unsustainable premium tariff.
A Mumbai based insurance broker said, “There is no rule specific rule on this. It has more to do with best practices.”
In the draft regulation, IRDAI has said, “Every insurer, for the purpose of Section 32D of the insurance Act, 1938, during a financial year, shall underwrite such minimum percentage of the 90% of the overall motor third party insurance business premium of the industry for the immediate preceding financial year. The minimum percentage so decided shall be equal to the simple average of the insurer’s share in total in gross premium of the industry and that in total motor insurance premium of the industry, both in the immediate preceding financial year. These regulations stipulate just the minimum obligation of the insurer in respect of motor third party insurance business. Notwithstanding this, at no instance the insurer shall refuse to underwrite the liability only motor policy covering motor third party insurance risk coming to its office.”
IRDAI data shows that the private non-life insurance companies mopped up a premium of Rs. 7,055 crore from third party motor premium in FY 2013-14 and Rs.11,000 crore through motor own damage cover. This huge difference in premium of motor third party and motor own damage cover indicates private general insurers are not inclined to sell third party covers.
In contrary, public non-life insurers had collected Rs.8630 crore and Rs.7240 crore from motor third party and motor own damage respectively in FY 2013-14.
Incurred claim ratio or claims received by general insurers for the premium paid towards insurance policies in a year in motor insurance segment (both third party and own damage) was 80% in FY 2013-14. Such a high incurred ratio indicates that non-life insurers are incurring hefty loss in this segment which can further affect their growth.