Insurers face loss from 3rd-party prem cut

In a meeting today with the Insurance Regulatory and Development Authority (Irda), insurance companies, with much reluctance, agreed to a lower 70 per cent hike in third-party premium for commercial vehicles from the earlier proposed 150 per cent hike.

"We are quite disappointed. This move will perpetuate cross-subsidisation among products and is detrimental to the growth of the industry. This year, the industry will have a loss of Rs 1,000 crore from underwriting of third-party claims," said K N Bhandari, secretary general of General Insurance Council.

"We had proposed to the finance ministry to slash the 150 per cent hike to 100 per cent, as the ministry considered the 150 per cent hike steep. We have agreed to the 70 per cent increase for motor third-party premium. It has been proposed that in March 2008, we will review the rates based on the claims experience and decide the revision of the rates. Simultaneously, we have suggested amendments to the Motor Vehicles Act and they have been incorporated in the draft proposal that has been submitted to the transport ministry. We expect the draft proposal to be approved by the government in the Budget session," said Bhandari.

Speaking on the changes suggested to the Motor Vehicles Act, Bhandari said, "Currently, there is no timeframe for filing of claims for accidents. So we have suggested that claims should be filed within a year. Secondly, we have suggested that claims should be filed by dependants of the victim residing in the place where the accident has taken place and thirdly expanding the scope of Section 163 A of the Act."

Section 163 A of the Motor Vehicles Act pertains to structured compensation for victims of an accident and their dependants. One does not have to prove that the driver was negligent and is given compensation.

Victims who have an income up to Rs 20,000 can avail of compensation under this section. Insurers have suggested to expand the scope of 163 A, so that accident victims earning up to Rs 1 lakh can come within the purview. The move will enable insurers to manage claims efficiently.

The All India Motor Transport Congress (AIMTC) had proposed a nationwide strike from January 20 because of the 150 per cent hike in motor third-party premium.

However, fearing that a strike would lead to higher inflation, Finance Minister P Chidambaram intervened and limited the increase of third party motor insurance premium to 70 per cent. AIMTC has called off its proposed nationwide trade bandh, said a release on the ministry website.

Liability to third party, including the one under Motor Vehicles Act, is compulsory. It covers the legal liability of the insured towards third party personal injury and property damage arising out of an accident involving the insured vehicle.