Link motor third-party obligation to number of uninsured vehicles: Irdai

A working group of the insurance regulator, IRDAI, has recommended that motor third party obligation of non-life insurers be linked to the number of vehicles insured or uninsured instead of the premium derived from the segment.
 

“Motor third party insurance being an integral part of every individual vehicle, the monitoring of insurance of such vehicles (by every insurer) most appropriately should be on the basis of count of such insured vehicles rather than (indirect/derivative) evaluation of premium derived out of insurance of such vehicles”, the working group said in its report.
 

Currently, the motor third party obligation is based on the amount of premiums an insurer collects on any given year out of motor third party business. But, premium collected by the insurers does not represent the fact that the premium difference between vehicle segments is very high. Insurers are inclined to underwrite risks of certain kind of vehicles which may be more profitable than others.
 

As a result, data suggests that two-wheelers form the bulk of the vehicles plying on the road without insurance coverage. “The uninsured vehicles largely comprise of Two Wheelers and this is quite obvious as nearly 70 per cent of the total vehicles in India consist of Two Wheelers," the report said.

Moreover, the current motor third party obligation is not known to the insurers in advance as the audited data required for the formula is not available till the middle of the financial year thereby making it difficult for the insurers to have a well set out plan for motor third party obligations in advance.
 

The working group has recommended three broad classification of vehicles – two wheelers, private cars, and others – to monitor penetration and motivate insurers to underwrite motor third party insurance.
 

“So, now no longer can insurers underwrite a larger ticket size of private cars or commercial vehicle and cover up for two-wheelers," said Sajja Praveen Chowdary, Buisness Head – Motor & Travel, Policybazaar.com.
 

In the new formula, the obligation of the insurer in the third party segment becomes the base. Over and above that, each insurer’s obligation will depend on their market share and the number of un-insured vehicles. So, large insurers have to underwrite more third party business.
 

“The new insurer licensed to underwrite motor insurance for the first time may be exempted from the application of the obligatory requirement during first two financial years of its operations including the financial year in which its operations are started," the working group said.
 

The insurance regulator has given time till May 8, 2020 to all stakeholders to give feedback on the recommendations of the working group.