Irda panel bats for 'declined pool' to offset motor insurance losses

With increasing third-party motor pool losses, the Insurance Regulatory and Development Authority (Irda) might do away with it and set up a ‘declined pool’ for commercial vehicles.

Under this system, a general insurer will have the flexibility to underwrite some of the third-party commercial vehicle businesses independently and price the risk accordingly.

Only vehicles denied insurance will come under the declined pool, where liabilities will be shared by all general insurance companies.

According to a committee set up the insurance regulator to study the feasibility of a declined pool in India, general insurers should be allowed to underwrite business directly for commercial vehicles.

At present, the third party pool accepts all proposals for third-party liability of commercial vehicles and the member companies take their risk in proportion to the market share.

“The trend in the claims experience reveals concerns on the sustainability of the pool. This in turn places burden on insurers as they are expected to meet the obligations as and when they arise, though they don't have a role to play at the underwriting stage and in the premium determination. As a result, some companies feel they could perform better if they undertake the risk independent of the pool, as the insurers can charge premium commensurate with the risk, if it is written on its books directly,” the committee report said.

The committee has also put in place certain guidelines based on claim ratio, frequency of the accident of the vehicle, age of the vehicle, and driver’s track record, for declining the risks uniformly across the insurers.

“In the administered pricing regime, the insurer may consider certain risks unviable at the administered rate. This necessitates the need of setting up a mechanism for declined risk with differential premium,” the report said.