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Plan to hike two-wheeler third party insurance premiums shelved

C. Shivkumar

Bangalore , June 29

FACED with resistance from public sector general insurance companies, the proposal to hike two-wheeler third party insurance premiums has been put on hold.

The Tariff Advisory Committee (TAC) of the Insurance Regulatory and Development Authority had notified all the non-life insurance companies for change in two-wheeler policies.

However, on Wednesday, the TAC issued a circular to all the insurers indicating that the proposal was on hold. The circular said, "It has been decided by the TAC Board that the implementation of the Long Term Act Only Policy for Two-Wheelers with effect from 1st July, 2005, be kept in abeyance."

The original notification would have meant a steep hike in two-wheeler third party covers from July this year. The effective increase would have meant an increase in premiums by10 times over present levels for two-wheeler owners.

The proposed change to be effected was to extend third party cover for the entire life of the two-wheeler. At present, the third party premium is Rs 160 for one year. The notification would have meant that the premium for 15 years, which is the effective life estimated for a two-wheeler, would be close to Rs 1,700, after a discount of 30 per cent. Inclusive of the 10.2 per cent service tax, the effective premiums to be forked out by two-wheeler owners would be close to Rs 2,000.

Only the own damage (OD) portion was left for annual renewals.

The sources said that all the four public sector insurers were unhappy with the new guidelines. The main fear was that the entire third party component, where the claims ratios were high would be left to the private sector insurers. In fact, PSU insurers sought complete detariffing, opening of competition to both the liability and the asset covers.

Instead, the sources said, the notification implied that the only the OD component would stand detariffed.

Accordingly, the main beneficiary of this notification would have been the private sector insurers, the sources added.

In fact, the sources said, that private sector insurers had avoided two-wheeler risk particularly third party covers to avoid high claims liabilities.

They said that the own damage component was now likely to see intense competition from the private sector. The private sector, the sources added, was now expected to drive down premiums in a bid to secure the business, especially since this was a low claims component. Two-wheeler own damage claims ratio was well under 100 per cent.

On the other hand, the third party covers have claims ratios well in excess of this figure, close to about 150 per cent. The claims ratio implies the payouts made by the insurers on the premiums collected.

Unless the premiums are higher than the claims, insurers incur losses.

Accordingly, the sources said, that the PSU insurers had made it clear that if the notification came into effect they would be left with few alternatives other than staying away from the two-wheeler sector exactly on the same lines as the private sector even in renewals in a bid to ensure that their bottomlines remain positive.

This was especially in a regime, where the focus has shifted to ensuring that the balance sheets remain healthy.

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