Insurers want motor tariff unshackled

General insurers want the Insurance Regulatory and Development Authority (Irda) to also free motor insurance tariffs from January 2007. They fear that the industry could face an upheaval if motor insurance continues to be shackled by tariff.

Motor insurance is currently subsidised by a higher premium on the profitable fire insurance business. If motor remains under a tariff regime, competition could create an alarming situation for insurers.

Claims under motor insurance are as high as 120 per cent of the premium income and motor risk accounts for 40 per cent of the general insurance industry. Fire risk business accounts for around 24 per cent of the premium income of the industry.

General insurers said premium for fire and industrial risks was expected to fall by 15 to 20 per cent after tariff regime. This can cause a huge dent in general insurers' profitability if motor insurance losses do not get covered by higher premium on other risks.

A case in point is the situation that general insurers landed in marine hull risks after it was detariffed in April this year.

General insurers quoted premium on marine risks as much as 50 per cent less than the rates prevailing in the tariffed regime and ended up underwriting risks at prices which were not acceptable to reinsurers. This resulted in insurers having to keep the marine exposure on their own book as reinsurers declined to take the risks on their books.

ICICI Lombard officials said if motor was not detariffed, insurers might continue subsidising it with fire. In the process, insurers' would be unable to increase penetration of the profitable fire risk business. Irda, in its roadmap for freeing all the remaining risks from tariffs, said it would decide on detariffing motor later as it involves a larger number of policyholders.

An official from a public sector general insurance company said, "We want all lines of businesses to be detariffed in one go as this will help insurers in deciding on premium for each class of risk independently. One line of business should not be affected by any other."