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General insurance companies have incurred total claims worth Rs 17,589.44 crore in the motor segment for the financial year 2012-13.
According to data from Insurance Information Bureau of India (IIB), the total premium from the motor segment was Rs 28,460.28 crore for the financial year ended March 30, 2013.
Private cars accounted for Rs 7,506.18 crore out of the total claims while goods carrying vehicles accounted for Rs 5,626.65 crore of the claims in motor segment. The total number of claims stood at a staggering 6.4 million as compared to total policies of 63.6 million for 2012-13.
Even as the general insurers are bracing high losses from the motor segment, especially the third party mandatory motor insurance segment, Insurance Regulatory and Development Authority (Irda) has asked them to make higher provisions for this segment. From 110%, the provisioning has now been mandated to be increased to 210% to provide for the risks of the declined risk pool.
“On one side while we are required to make higher provisions, the claims are on the rise, especially due to the fact that there is no cap on compensation in motor third party insurance,” said the chief executive of a private general insurance company.
From April 1, 2012, the third party (TP) pool for commercial vehicles was dismantled and declined risk pool was set up. However, the woes of general insurers are far from over. Combined ratios for the motor insurance segment have stood between 140-145% for the industry. A ratio below 100% indicates that an insurer is making profits.
In December 2011, Irda dismantled the commercial third-party motor pool. The move had assumed importance, as it freed the pricing model and gave insurers rights to price vehicles based on claims.
Insurers explained that the rise in claims was not substituted by hike in premiums. A senior general insurance executive said that while they had sought a 60-65% hike in premium in motor TP segment, only a 20% hike was seen.
The move to raise the premium was in line with the regulator's directive that the third-party motor premiums will be revised annually using a formula based on inflation and claim experience. Motor TP segment is still regulated by Irda and hence pricing is decided by the regulator. The industry has been demanding that pricing for this segment should be freed.
Also, under the present Motor Vehicles Act, there is no ceiling of the compensation/claim that can be awarded in third party insurance. Hence, companies have to pay whatever is decided by the courts. An amendment to the Motor Vehicles Act, which seeks a cap of Rs 10 lakh on the compensation that can be awarded, is still to be presented in the Parliament.
