Insurers want motor pool abolished - seek free hand at pricing third party risk cover.
Several insurance companies have called for the abolition of the ‘motor pool' mechanism and concurrent free-pricing of the motor third party insurance rates.
The ‘motor pool' arrangement was brought in 2007 to ensure that the industry-wide loss on account of ‘motor third party insurance' was borne by all players. This arrangement was brought in because several private sector insurers were then not willing to take up this business.
Vehicles had to be insured for third party liability (damages to be paid if the vehicle injures or kills someone — the ‘third party') mandatorily, by the provisions of the Motor Vehicles Act. But private sector players were unwilling to underwrite this risk and the public sector companies were saddled with this business.
Due to various reasons, the motor third party insurance has been a loss-making proposition and the public sector companies were taking all the losses.
The motor pool was meant to remedy the situation, by collecting all the premiums into the pool and allocating the losses to all the insurers, according to a specified formula.
But, clearly, the time has come for a review of the motor pool arrangement, because insurance companies are willing to underwrite motor third party risk, provided they are given a free hand at pricing.
Source - Hindu Business line
