No refusal for motor insurance

Regulator has barred insurers from refusing to cover this risk

Third-party (TP) motor insurance refusal rates have seen a big drop, with the regulator cracking the whip on insurers refusing to provide such covers.

Insurers have also been asked to sell motor TP products online.

All general insurance companies are now selling these policies through their website. Senior executives said the regulator insisted on this, for ease of purchase.

The Declined Risk Insurance Pool for commercial vehicles — to bring equity and efficiency in claims management — in operation since April 1, 2012, will be dismantled on April 1 this year. The Insurance Regulatory and Development Authority of India (Irdai) said the Insurance Act has already called for insurers to complete a certain minimum motor TP business in a financial year. Specified insurers have to underwrite minimum obligations in this segment. This was based on a formula taking into account factors like total gross direct premium income (GDPI) under all business  lines of insurers in the immediate preceding financial year.

CHANGE IN NORMS

• Since the losses in motor insurance are high because of higher claims reported every year, the practice of rejecting covers to vehicle owners is rampant
• However, third-party (TP) motor insurance refusal rates have seen a big drop, with Irdai cracking the whip on insurers refusing to provide such covers
• The regulator has asked insurers to complete a certain minimum motor TP business in a financial year

“We have been asked to not deny TP insurance cover to any vehicle owner at any point. There were cases of rejection of proposals, especially in the commercial vehicle segment, since there were increased risks involved in that segments adding to higher claims,” said head of claims and underwriting at a private general insurance firm.

The Insurance Laws (Amendment) Ordinance had 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 a minimum percentage of insurance business in TP risks of motor vehicles as specified by the regulations. An insurer licenced 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, including the financial year in which its these are started.

In December 2011, Irdai had dismantled the commercial TP motor pool. The regulator had decided to form a ‘declined’ pool, effective April 1, 2012. Under the declined pool, 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 differential pricing system, based on claims, age, and frequency of accidents, would evolve.

Since the losses in motor insurance are high because of higher claims reported every year, there was a rampant practice of rejecting covers to vehicle owners. This was more common for trucks and other such heavy commercial vehicles. Due to the frequency and duration these vehicles stay on road, risks associated with claims are much higher. Added to this, insurers said unlimited liability for claims in motor TP also lead to rejections. According to the Motor Vehicles Act, there is no limit on the amount of compensation paid to people for TP accidents.

This, said insurers, is seeing an increase by 20-30 per cent every year, due to higher awards being given from courts. At present, motor insurance in India continues to be the largest non-life insurance segment. It reported growth of 10.52 per cent in last financial year and 14.15 per cent in 2013-14, according to  Irdai.

However, losses with respect to claims have been high.