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Thread: Insurers can’t shun third-party motor cover mandatorily

  1. #1
    PW Expert MTG's Avatar
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    Arrow Insurers can’t shun third-party motor cover mandatorily

    Insurance companies may soon have to mandatorily sell a minimum number of motor third-party liability policies. This follows proposed amendments to the Insurance Act 1938 that aims to ensure that insurers do not shun proposals for the mandatory, yet unprofitable, third-party cover.

    This amendment is a part of the omnibus insurance legislation that seeks to amend existing laws. The most-publicised portion of this amendment is the part which seeks to increase foreign direct investment in insurance from 26 to 49%.

    The insurance bill wants to make motor-third party insurance more accessible to buyers, as this is a statutory cover. Under the Motor Vehicle Act, every automobile owner has to purchase an insurance cover which will meet the liability arising out of claims from third-party accident victims.

    Insurance companies are unsure of what the impact of the amendment will be. At present, there is a rural obligation on insurance companies, under which they are required to ensure that they generate up to 7% of their total premium from the rural business.

    There are penalties prescribed if they do not achieve this level of business. However, there is no quota on the basis of products. It is expected when the quotas do come up after the amendments take place, the regulator will fix an obligation based on the level of business done by an insurance company in the immediate preceding year.

    The third-party insurance portfolio, which provides compensation to victims of road accidents, is loss making as total compensations awarded by the motor accident claims tribunal are more than the premium collected.

    The losses are largely because of claims by commercial vehicle accident victims. To ensure that no single company becomes the victim of adverse selection, insurance companies have agreed to pool together their premium and claims from third-party insurance and share the losses

    The amendment to the Act will replace the motor pool arrangement, which is limited to only commercial vehicles and replace it with a quota system for all vehicles. Some insurers fear that such a system would perpetuate cherry picking as all companies would try to fulfil their targets by writing profitable third-party insurance for private cars.


    Insurers are reluctant to comment on the impact of the legislation until they discuss the proposals at an industry level. Some privately feel that a quota is not the answer, since third-party is a mandated cover. They said that only way out is to allow insurers to charge prices that will offset losses completely.

    The regulator controls rates on third-party insurance as this is a sensitive subject which will add to the cost of transportation across the country. Also the truckers have a strong lobby which has strongly resisted price hikes.


    Source -economictimes.com



  2. #2
    NewBie
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    Its good for the consumer. My father has one old Maruti car for which I had visited and called around 4 Pvt. Insurance Co. , but no one was ready to insure, so I have insured the same with my friend, who is working with New India Insurance co.
    I would say that IRDA has to make a seprate cell for helping consumers from these Pvt. Players.

  3. #3
    Moderator CONFUSED's Avatar
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    Its good decision by IRDA. Vinit - There is Cell for redressal of grievances of Policyholders.Goto IRDA website -> Grievance Cell.
    Rules/Guidelines at PolicyWala | Help Old People |
    I am speaking from experience and my own personal views above - I am not an advisor, nor an expert.

  4. #4
    PolicyWala Fan Natraj's Avatar
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    Vinit as per IRDA, Pvt Cos cannot say no to third party insurance. But in real they are doing thats why this new regulation by IRDA. Pvt. Cos only want cream business.
    In order to get a Loan, you first need to prove that you don't need it.


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