Limited liability might lead to third-party motor premium

Non-life insurers have sent a proposal to the ministry to consider a model of TP covers with fixed limits

In case of a limited liability clause in a policy, premia in the mandatory motor third-party (TP) segment might see a fall, especially for two-wheelers and private cars.

General insurers have proposed to the government compulsory TP motor cover, with limited liability. For the high-risk commercial vehicle segment, an option for additional liability limit covers has been proposed, which will provide a sum over and above the basic policy. "In several countries, basic TP policies have a limit of Rs 10-20 lakh. When we have similar limits for rail and air accidents, why not for road accidents?" asks the chief claims official of a private general insurance company.

Non-life insurers, led by General Insurance Council, have sent a proposal to the road transport and highways ministry to consider a model of TP covers with fixed limits, similar to the pre-determined liability limits for air and train accidents. The implementation of this model will need an amendment in the Motor Vehicles Act.

Currently, under this Act, there is no limit on the liability of vehicle owners. Non-life insurers say due to this, an increase in claim awards by courts is seen every year. R Chandrasekaran, secretary-general of General Insurance Council, told Business Standard the council had sought a limit on the timeframe to file claims, and limit jurisdiction to file claims in case of an accident.

In 2012-13, general insurance companies incurred total claims of Rs 17,589.4 crore in the motor segment, according to data released by the Insurance Information Bureau of India. "The commercial vehicle segment sees the highest losses and the most claims. If this segment's TP liability is limited, it could lead to lower premia for other categories," said the chief executive of a small private general insurer.

In 2012-13, the total premium in this 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 claims stood at a staggering 6.4 million, while the total number of policies stood at 63.6 million. TP claims stood at Rs 9,177.3 crore, while 'own-damage' claims stood at Rs 8,412.1 crore.

While the 'own-damage' motor segment covers losses to self, motor TP covers the liability of a vehicle owner to a third party in case of an accident.

The Insurance Regulatory Authority of India raises the premium in motor TP segment every year. For 2014-15, it has raised premia nine-20 per cent, across vehicle categories. Experts said the rise was based on the claims experience in a particular vehicle category. "In segments such as motorcycles and cars, there are very few large claims. Therefore, we can incentivise those with lower claims," said the head of underwriting at a public general insurer.

The commercial vehicle segment has been a concern in the motor segment, owing to which insurers had sought steep rises (at least 55-65 per cent) in overall TP premia. They feel the rise for 2014-15 hasn't been commensurate with the claim size.

Currently, combined ratios in the motor insurance segment stand at 140-150 per cent, owing to losses in the TP motor segment. According to estimates, payouts by insurance companies to individuals for motor TP-related accidents have risen 15-20 per cent.

The general insurance segment is also considering linking motor pricing to individual behaviour, as well as the location of the vehicle. For instance, if a vehicle is chauffeur-driven and runs within a small city, or if it is driven by a woman, the premia might be lower. For vehicles driven in hilly areas or difficult terrain, the premium might be higher.