Irdai seeks to revise formula for fixing insurers' obligation for Motor TP

The insurance regulatory and development authority of India (Irdai) has come out with an exposure draft that seeks to revisit a 2015 regulation that fixes obligations for general insurers with respect to motor third party (MTP) business to achieve the larger goal of increasing MTP insurance penetration.

The reason behind revisiting the regulation is because the present formula does not indicate or monitor the penetration i.e. percentage of insured vehicles to total vehicles plying on the road. Further, it does not ensure increase in penetration under each category of vehicles and also does not address the treatment of long-term motor third party policies. The present regulations are such that general insurers are unaware of their obligations until the middle of the financial year, making it difficult for the insurer to plan their obligations well in advance.

Hence, the regulator has proposed a revised formula, wherein the obligation of the insurer for any financial year will take into account the number of uninsured vehicles as determined by Insurance Information Bureau of India and the minimum percentage of the uninsured vehicles intended to be insured in the year under consideration, which will be determined and declared by Irdai every year for different broad class of vehicles in due consideration to the contribution of that class to total uninsured vehicles in the country two years before the year under consideration.

For long term motor insurance products, the Insurers may take credit for five/three/two years for two wheelers depending on the remaining term of the policies for which it is in force and three years for private cars depending on the remaining term of the policies for which it is in force, the regulator said in its exposure draft.

The regulator has asked for comments from stakeholders, which they have to submit by January 25.