The Hindu Business Line : Motor pool may end year with profits

Bangalore, Feb. 19 The India Motor Insurance Pool (IMIP) has parked its collection of motor third party premia in bank fixed deposits since the Insurance Regulatory Authority (IRDA) was yet to finalise investment guidelines.

IMIP’s Chief Executive Officer, Mr B.V.S. Prasad, said that they had collected Rs 1,800 crore as premia for the first 10 months of the current financial year.

IMIP is a mechanism where, a pool, created by the 12 public and private sector non-life insurers, took over all third party motor risks. The share of each insurer in the pool was decided on the basis of the gross direct insurance premium collected. The mechanism was to be administered by the national reinsurer General Insurance Corporation (GIC). Insurers underwriting on behalf of the pool would be entitled to an administrative commission of 10 per cent of the premium.

But investment guidelines for the pool were not finalised at the time of inception. Insurers said that this was because the insurance regulator and the GIC, which currently owns the pool, preferred to run it for some time, before finalising investment guidelines.

Currently, non-life insurers in the country are expected to park their investible funds in mandated investments. Under the guidelines, non-life insurers are mandated to park at least 20 per cent of their respective investible funds in central government securities, 30 per cent in State Government securities, 10 per cent in infrastructure sector and 5 per cent in loans to State Government departments for housing. The remaining funds were allowed to be parked in investments approved by the regulator that included equities and corporate debt.

Despite the absence of a high yield, the pool was expected to end this year with a surplus with gross premiums exceeding claims. This was against the 200 per cent claims that insurers had incurred on third-party liabilities. This was despite the fact that the average yield on investments of the pool was expected to be 8 per cent as against 9-9.5 per cent for the rest of the non-life insurance sector.

Hike in TP tariffs

However, Mr Prasad preferred to be circumspect about any surplus and said: “There may be a surplus, but claims are also likely to come in much later. The surplus is on account of the 70 per cent hike in TP tariffs last year and not on account of any claim reduction.”

Insurers adopt conservative accounting practices, where there is considerable over provisioning, in anticipation of claim events. Non-life insurers have traditionally parked 50 per cent of their incremental premium collections as provisions for unexpired risks. This is also partly because in motor risks there is no ceiling on insurer liabilities. There are fixed ceilings for third party risk in aviation and shipping.

Mr Prasad said, “It is going to take some time before losses are cut down.” Insurers had traditionally parked large portion of their investible resources in short-term government securities for liquidity purposes. Industry sources said the bias for fixed deposits was also to ensure liquidity before evolving investment guidelines for the pool.

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