General insurers propose compulsory motor insurance with voluntary liability limit hike

While there will be a liability limit in compulsory motor cover, there maybe an option to buy higher liability limit covers

The compulsory third party (tp) motor cover will only have a limited liability, with an option to have covers for additional liability limits, if a proposal by general insurers is considered.

Non-life insurers, led by the General Insurance Council have sent a proposal to the ministry for road transport and highways led by Nitin Gadkari to consider a model of TP covers with fixed limits similar to the pre-determined liability limits in air and train accidents.

Over and above this limit, if owners dealing in high-risk transport like fleet owners and truck drivers require a higher cover, they would offered an option to buy an additional cover.

This model called Compulsory Auto Liability Insurance and Voluntary Auto Liability Insurance, will be implemented if the Motor Vehicles Act is amended.

Presently, there is no limit on the liability of vehicle owners under this Act. Due to this, non-life players said that there has been in the claim awards by the courts every year.

R Chandrasekaran, secretary general of General Insurance Council said that they have sought limit on time-frame to file claim and limit jurisdiction to file claims in case of an accident, from the minister.

The ministry is yet to take a final call on this issue.

General insurance companies incurred total claims of Rs 17,589.4 crore in the motor segment in 2012-13, according to data released by the Insurance Information Bureau of India (IIB).

The total premium from the segment stood at Rs 28,460.3 crore. Of the total claims, private cars accounted for Rs 7,506.2 crore, while the share of goods carrying vehicles was Rs 5,626.6 crore.

The total number of claims stood at a staggering 6.4 million, while the total policies stood at 63.6 million. TP claims stood at Rs 9,177.3 crore, whereas 'own damage' claims were at Rs 8,412.1 crore.

Insurance Regulatory and Development Authority (Irda) had asked non-life players to increase mandatory provisioning from 110% to 210%, to safeguard against the risks in the declined risk pool.

Irda has also been increasing motor TP premiums every year, to compensate for high claims in this segment. The commercial vehicle segment has been a constant cause of concern in the motor segment, due to which insurers have sought steep hikes (atleast 55-65%) in overall TP premiums.

Even two years after the third-party motor pool for commercial vehicles was done away with, the woes of general insurers are far from over. Combined ratios for the motor insurance segment stand at 140-150% at present for the industry, owing to losses in the third-party motor segment.

According to industry estimates, there is a 15-20% increase in the payouts made by insurance companies to individuals for motor third party-related accidents.

While the own damage motor segment that covers losses to self during accidents is de-tariffed, motor TP pricing is still regulated by Irda and revised on an annual basis. Motor TP covers liability to a third party caused by a vehicle owner during an accident.

For 2014-15 financial year, Irda has hiked premiums in the range of 9-20% for different categories of vehicles.