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Friday, 9 December 2011

Who is the Carrier of Risk - Insurance Companies or Common Man?

From last 10 years, I am witness of motor third party liability insurance pity condition in India.
Motor third party liability insurance is mandatory under section 166 of the Motor Vehicle Act 1988 in India. Since the act was passed, every insurance company has to compulsorily accept the third party liability insurance. Very soon, it becomes the biggest roadblocks in the progress of Indian insurance companies’ profits. The reasons were huge claims especially in case commercial vehicles motor liability, long tailed in nature – generally takes 7- 8 years to settle, unpredictable awards made by the courts,  no limits placed by Motor vehicle act on the awards and as a whole the motor third party liability became riskier and capital intensive for the insurers day by day.
The issues were exaggerated in the year 2005 when regulatory bodies started receiving denial from the insurance companies to insure commercial vehicle for third party insurance. In April, 2007, regulators came up with the solution to the problem and introduce Indian Motor Third Party Insurance Pool (IMTPIP) for the commercial vehicle. Afterwards, the pool member insurers have started accepted commercial motor liability Insurance but it did not end their problems. In the next 3 years, the pool generated Rs 673 crore losses especially in commercial liability claims which were showing the losses of  470 crore in  the year 2008-09 increased almost 4 times from last year claims. It was clear evident from past data and with the current premium; the pool will become unsustainable in near future.
The recent committee report by IRDA on third liability pool gave solution to the critical issues of insurers. The insurance companies will now be able to decline the risk under the commercial motor liability in case it does not fit under their underwriting criteria or they are not capable of underwrite the risk. The denial of the risk will not end the insurance company responsibility, the same insurance company will act as policy servicing underwriter for GIC who will accept the risk in such cases. GIC (General Insurance Corporation), who is the only reinsurance company in India, will directly underwrite such risk through its separate website. A nodal officer will be invited from each insurance company to handle and give proposal number in each such case. In all the cases whether insurance company accept the risk or decline the risk, the dream to cover 100% motor vehicle insurance can become true. Now the white elephant of the Indian insurance industry has got some other way to fund the expenses. 
Are you really convinced that it is the solution of the problem? Atleast I am not !!
 The major lapse here is in the root cause analysis, whether the problem lies -
·      In settlement of claims
·      Non-issuance of the policy
·      High claim ratio of motor industry
·      Bad emergency management services in the country
·      Long claim settlement time taken by judiciary body

As per the WHO, India has the highest road accidents in the world.