General insurers' motor problem

Third-party claims mount in this segment on account of past policyholders, with the permitted later recovery an uncertain procedure; annual loss estimated at Rs 500 cr or more

General insurance companies are taking a big hit in their motor insurance portfolio, due to their being asked to pay for third-party (TP) accidents by past policyholders,which they have to later recover.

K G Krishnamoorthy Rao, managing director, Future Generali India Insurance, says, "This is because it is easier to direct the insurer to pay the amount. Losses are to the tune of Rs 500 crore every year."

In India, TP motor insurance is compulsory for all vehicles. Motor own-damage policy is optional.

Sanjay Datta, chief of underwriting and claims, ICICI Lombard General Insurance, said in case of motor accidents, insurance companies are liable to pay even if the vehicle owner was insured in the year the accident occurred, but did not renew the policy subsequently. "A lot of times, the reporting of the accident happens later on and the case might come up for claims after the policy has lapsed. In some cases, the court may ask the company to pay even if the accident occurred after the policy period. It happens because the victim might be very poor and the vehicle owner does not turn up for the hearing. It does not happen in all accident cases," he added.

In such cases, if the company pays, it can recover the money from the vehicle owner. However, this process is difficult. It involves filing a notice and attaching the property, similar to debt recovery.

Sector officials said there'd been a rise, year-on-year, in such court awards. A senior official said it was a challenge to reach some policyholders once they'd paid the claims. "Since proper KYC (Know Your Customer checks) are not done in general insurance, it is difficult to track them down and we face losses," said the chief executive of a mid-size general insurance company.

Non-life insurers have been facing big losses in motor insurance, with their pricing regulated in the TP segment. These losses are also expected to be steeper from FY16, as the regulator has made it mandatory for insurers to have a minimum percentage of the motor TP business underwritten. This is coupled with a much lower increase in motor TP premiums than what the sector had asked for. The Insurance Regulatory and Development Authority of India (Irdai) proposed an increase in premium between 14 and 108 per cent from April 1.

Even after the TP pool for commercial vehicles was dismantled and a declined risk pool set up, the woes of general insurers are far from over. Combined ratios for the motor insurance segment have been between 150 and 160 per cent.

Inadequate price increases in the motor TP segment and incomplete coverage of TP insurance for the vehicle owning population where the cover is mandatory have led to these losses remaining high. Insurers said companies paid 60-100 per cent higher in claims than the amount of premium earned.

A road safety and transport Bill has proposed a maximum liability of Rs 15 lakh for road accidents under a standard TP insurance cover. However, customer groups and lobbies representing truck drivers and other transporters are against this. At present, there is unlimited liability for road accidents.