Irda Committee Moots Special Third-Party Insurer

The justice Rangarajan committee, appointed by the Insurance Regulatory and Development Authority (Irda), has suggested a separate insurer for third-party (TP) liability business as a more practical proposition to relieve the burden on general insurers.

Since insurance of third-party liability is compulsory with an administered tariff, and the perception of the industry that it is a loss-making venture, a TP pool may be formed to administer it, the committee report opined.

But the idea of a pool is no solution to the problem of losses. It would serve no purpose other than to create a further tier in the bureaucratic machinery, the report, which was made available to public by the authority, warned.

 

The committee submitted its report in April 2003, and it was placed for discussion by the CEOs of all general insurers at a meeting in Hyderabad on May 6.

There is no convincing proof that the three factors that insurers cite - unlimited TP liability, not all vehicles being insured and maladministration of claim settlement leading to a drain on resources, make the TP cover unviable.

It is possible for the insurance companies to extend cover to more vehicles and augment the resources, estimate the liability more accurately based on regularly recorded claim experience and also contain frauds, the committee felt.

Insurance companies have to tackle the issue of leakage (false and untenable claims) on their own.

Perhaps the Irda or all the companies together could set up special investigating units or even out-source fraud investigation, it said.

The committee also criticised the insurers view that detariffing own damage (OD) portion of motor insurance is an answer to the problem of third party liability.

It (detariffing OD) is inequitable as it would load the cost of the compulsory insurance on to owners who want to have their own damage insured, it said.

It is opposed the general principle of insurance of spreading the risk equitably. Any suggestion for detariffing must therefore be considered independent of the TP liability, it quipped.

Three members of the Rangarajan committee dissented with its report. The main contentions of these members are : restructuring the TP business as a separate business is unworkable and would lead to a monopolistic situation, separate insurance company for TP insurance may not find any takers, adequate data does not exist for proving that TP insurance is a losing proposition and even if it were, setting the tariff on actuarial data would not be able to rectify the problem.

The present system of setting a floor tariff and capping the loading is better than setting only a floor tariff as it would lead to the exploitation of motor vehicle owners, they voiced concern.