Long term motor policies for commercial vehicles is sometime away

Long term third party motor insurance policies for commercial vehicles are still some time away. This is because non-life insurers are not yet prepared to bear the same premium costs for longer durations, due to this segment being loss-making.

While motor policies are being envisaged for the segment, general insurers are wary of these products especially in commercial vehicles category, since it is understood that pricing cannot be revised in midst of the policy being in-force.

It is estimated that the combined ratio for motor insurance might touch 200% by the end of March 31, 2015 on the back of higher claims especially from commercial vehicles.

“It is not viable to launch three year policies for commercial vehicles because of the claims experience that the industry has had in this segment. Our motor book will suffer if we do so,” said the head of underwriting at a mid-size general insurer.

According to general insurance company executives, even though the overall motor cover prices have gone up this fiscal, it will not be able to compensate for the underwriting losses and higher combined ratio. A combined ratio below 100% indicates an insurer is profitable.

This ratio is the sum of incurred losses and operating expenses, measured as a percentage of earned premium. It is a measurement of profitability. The Insurance Regulatory and Development Authority (Irda) had recently decided to limit the third-party premium hike in motor insurance to 9-20%, compared to a proposal of hikes in the range of 20-137%.

Recently, Irda introduced long term motor third party insurance policy for two wheelers with a three year term.

Irda said that the total premium charged for the third party coverage would be three time of the annual TP premium for two wheelers as decided by the regulator. Motor TP premium is regulated by Irda and the regulator brings out revised rates for these policies every year, based on the claims experience. TP motor insurance is mandatory in India.

The regulator also said that the premium would not be revised upwards or downwards during the period of the policy.

General insurance companies have incurred total claims of around Rs 18000 crore per year in the last two years. Good carrying vehicles are among the top contributors to these claims.

“Long term policies would mean that once issued, the policy cannot be cancelled midway. This is not viable, especially when we have several instances of rogue drivers/owners operating in motor segment,” said the chief executive officer of a private non-life insurer with a large motor portfolio.

The regulator has said that since there is also a need to have long term comprehensive cover including own damage and TP covers, insurers can also file 3-year term comprehensive policy for two wheelers.

While the own damage motor segment covers losses to self during accidents, motor TP covers liability to a third party caused by a vehicle owner during an accident.