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GIC stops reinsurance of third-party motor risk

C. Shivkumar

The restriction in reinsurance support was prompted by high claims made by some of the primary general insurers, especially the private sector companies. "Motor insurance is a bleeding portfolio, and such high claims ratios in the industry cannot be sustained," Mr Ramanujam said.

Bangalore , March 24

The national reinsurer, General Insurance Corporation (GIC), has quietly stopped providing reinsurance cover for third party risks in motor vehicle covers extended by primary insurers.

The Managing Director, Mr P.B. Ramanujam, told Business Line, "We have adopted international practice and globally motor insurance is seldom provided reinsurance cover." Till early this year, GIC had provided some reinsurance support to the primary general insurers, both in the private and public sectors for motor vehicle covers.

But industry sources said that the corporation has conveyed to primary general insurers that from this year onwards, reinsurance support would be restricted only to own damage and would not include third party covers. They were provided reinsurance support by GIC for third party risks through the Excess of Loss covers.

The restriction in reinsurance support was prompted by high claims made by some of the primary general insurers, especially the private sector companies. "Motor insurance is a bleeding portfolio, and such high claims ratios in the industry cannot be sustained," Mr Ramanujam said.

Motor insurance, in particular third party covers, is one of the major reasons for underwriting losses in the insurance sector. The claims ratios in motor vehicle covers are in excess of 150 per cent. Some of the primary insurers had in the recent past contained their respective losses in the third party portfolios, by resorting to reinsurance support from GIC.

The GIC move, the sources said, implied that primary insurers would have to absorb losses on their respective third party risk covers or a higher tariff regime for motor vehicles third party risks. The insurance regulator has so far not permitted insurers' move for higher tariff loading. In fact, two years ago when some of the insurers attempted to effect large increases in premiums, the regulator intervened, forcing them to refund premiums loaded in excess of 100 per cent.

Besides, the sources said that the GIC move would accelerate the shift to a deregulated tariff environment for the motor insurance sector. This was particularly since few private sector companies are in a position to support the motor insurance portfolios without reinsurance cover or without tariff loading. A deregulated environment implies that tariffs would be determined by insurers themselves, on the basis of claims experiences.

Besides, the move would also pave the way for insurers to tighten up their claims books especially on commercial vehicles portfolios. Claims by commercial vehicles especially on third party risks, are the largest contributors for bleeding of the insurance companies.

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