Insurers must do minimum motor TP business: Irdai exposure draft

Says insurers should underwrite such minimum percentage in 90 per cent of the overall motor TP insurance business premium

The Insurance Regulatory and Development Authority of India (Irdai) has brought out an exposure draft on insurers’ obligation with respect to motor third-party (TP) insurance business. According to this, every insurer will have a new minimum percentage of business, which it should underwrite every financial year.

Irdai said that insurers should underwrite such minimum percentage in 90 per cent of the overall motor TP insurance business premium of the sector for the immediate preceding financial year.

Here, the minimum percentage will be equal to the simple average of the insurer’s share in total gross premium of the insurance sector as well as the sector’s total motor insurance premium in the immediate preceding financial year.

For instance, if an insurer’s share in total gross premium is five per cent and its share in motor insurance premium is 10 per cent, the average would be 7.5 per cent - which would be the minimum percentage. Hence, this insurer would have to underwrite 6.75 per cent of motor business (7.5 per cent of 90 per cent) in that year.

This draft is in response to the insurance ordinance, which had sought enabling regulations on this issue.

Irdai will accept comments till March 25, after which it will finalise the guidelines.

The Insurance Laws (Amendment) Ordinance has introduced section 32D regarding the percentage of TP motor insurance, which needs to be underwritten by each insurer. It says every insurer carrying on general insurance business shall underwrite minimum percentage of insurance business in third party risks of motor vehicles as may be specified by the regulations.

The new insurer writing motor insurance business licensed to underwrite motor insurance for the first time shall 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.

These guidelines are not applicable to insurers primarily engaged in health insurance, re-insurance, agriculture or export credit guarantee.

The Motor Vehicles Act, 1988 provides for compulsory motor TP insurance for vehicles plying on the road. However, there was no provision either in the Motor Vehicles Act or the Insurance Act regarding the specific obligations of an insurer towards underwriting the motor third party risks.

It is expected the obligation of the insurers to underwrite Motor TP risks determined based on a broad approach taking into consideration several relevant factors would ensure equitable distribution of this responsibility.

Taking into account the experience gained so far and factoring in various parameters such as the total market share of the insurer and the insurer’s market share of motor insurance, insurers’ obligation to underwrite motor TP risks are proposed to be mandated.