Motor insurers' declined risk pool to end in 2 weeks

The Declined Risk Pool for Commercial Vehicles, operative from April 2012, is to be dismantled as of April 1 this year.

The General Insurance Council and some of the members of the pool had told the Insurance Regulatory and Development Authority of India (Irdai) there was no need to continue it after insurers had been mandated in this regard once the Insurance Act was passed. The rule now is for general insurers to do a certain minimum of motor third-party business in a financial year, based on a specified formula.

An entity licensed to underwrite motor insurance for the first time would be exempted from the application of the obligatory requirement during the first two financial years of its operations.    

In December 2011, Irdai had dismantled the commercial third-party motor pool. The regulator had decided to form a 'declined' pool, effective April 1, 2012. Under this, insurers had the right to refuse or decline third-party insurance if it found it too risky an asset to underwrite. This declined vehicle would then be given a cover by another insurer. However, the risk would be ceded or transferred to the declined pool. For the remaining vehicles, insurers would be free to underwrite risks independently. This meant a deferential pricing system, based on claims, age, and frequency of accidents, would evolve.