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C. Shivkumar

BANGALORE, March 29

PRIVATE sector insurance companies have pulled out of the motor insurance sector in view of the deferral in the implementation of the new tariff policy.

The policy was originally slated to have come into effect from April 1. It had hiked motor insurance for commercial vehicles from 1.5 per cent to 1.751 per cent and for personal transport vehicles from 3.2 per cent to 3.5 per cent. These tariffs are now expected to come into effect only by June.

Sources said the notified tariffs were not acceptable to most of them, since it failed to reflect the high claims in the sector. In fact, companies such as Royal Sundaram, Tata-AIG, ICICI -Lombard and Bajaj Allianz which had entered the sector in a big way to build up a critical mass of premiums found that the claim ratios had overshot the self-imposed limit of 70 per cent. This was despite the fact that companies had restricted exposure in the motor sector to only non-commercial vehicles.

In international practice, insurers limit exposure to sector when claims ratios hit the 70 per cent limit, as a matter of prudence. Such internal restrictions are also done in order to ensure that there is no deterioration in the solvency margin. However, most of these companies found that their claims experience was way above this limit and had, accordingly, moved to stop losses.

The sources said since none of them still had any substantial reserves build-up, unlike the public sector, high claim ratios would imply that losses would have to be capitalised.

Besides, the sources said the insurers were also unhappy about the 15 per cent commission fixed for motor insurance. Such a commission would imply that the retention premiums were extremely low. Consequently, the companies have sought corrections.

Along with the private sector companies, the four public sector companies have also expressed their unhappiness with the Insurance Regulatory and Development Authority (IRDA) over the issue of the third party risks. IRDA had rejected any capping of third party risks. Instead what has been permitted is a tariff loading depending on the age of the vehicle and on the basis of past claim experiences. Such loading has been permitted up to 100 per cent.

However, the sources said that even assuming this kind of a loading, the tariff was still insufficient since the base itself was low.

The third party liability premium is Rs 200 for property damage of up to Rs 7.5 lakh. For unlimited liability cover, the additional premium ranges from Rs 100 to Rs 250.

Consequently, with no methods available for assessing a probable maximum loss in motor insurance, the option was to limit liabilities, which was the last option before the insurance companies. That option hds now been exercised to protect solvency, the sources added

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