Insurance firms saw Rs 17,590-cr motor claims last year

General insurers bracing up with high losses from motor segment, especially from third party mandatory motor insurance segment

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. The third party (TP) claims stood at Rs 9,177.3 crore whereas own damage claims were at Rs 8,412.1 crore. While TP insurance is compulsory, own damage motor insurance is not.

Even as general insurers are bracing against high losses from the segment, especially from TP mandatory motor insurance segment, the Insurance Regulatory and Development Authority (Irda) has asked them to increase mandatory provisioning from 110 per cent to 210 per cent to safeguard against the risks in the declined risk pool.

“While we are required to make higher provisions, the claims are on the rise, especially due to the fact that there is no cap on compensation in TP motor insurance,” said the chief executive of a private general insurance company.

From April 1, 2012, Irda had dismantled the TP pool for commercial vehicles and a declined risk pool was set up. The move had assumed importance, as it freed the pricing model and had given insurers rights to price vehicles based on claims. However, the woes of general insurers are far from over. Combined ratios for the motor insurance segment stood in the range of 140-145 per cent. A ratio below 100 per cent indicates an insurer is making profits.

Insurers said the rise in claims was not substituted by a hike in premiums. A senior general insurance executive said while the insurers had sought a 60-65 per cent rise in premium in TP motor segment, only a 20 per cent hike was seen.

The move to raise the premium was in line with the regulator's directive that TP motor premiums would be revised annually using a formula based on inflation and claim experience. The TP motor segment is still regulated by Irda and hence, pricing is also decided by it. The industry has been demanding pricing for this segment be freed.

Also, under the current Motor Vehicles Act, there is no ceiling on the compensation/claim that can be awarded in TP insurance. Hence, companies have to pay whatever is decided by courts. An amendment to the Motor Vehicles Act, which seeks a cap of Rs 10 lakh on the compensation to be awarded, is yet to be presented in Parliament.