Mishap claims hit insurers firm

CEOs of non-life insurance companies met with the Insurance Regulatory and Development Authority on the first day of the new fiscal seeking the regulator's intervention to plug losses arising out of compensation claims from accident victims. In the meeting, non-life insurers told the regulator that the government should share losses out of its consolidated fund if the business were to run as a social obligation.

A fortnight before insurance companies closed their books for the financial year; the insurance regulator asked all non-life insurance companies to set aside funds to meet claims from victims of road accidents under the third-party cover. The industry comprising 24 companies was asked to set aside Rs 153 for every Rs 100 that it had collected as premium. This would result in all companies together providing around Rs 3,500 crore. The hit would be taken by each company in proportion to its overall market share which would result in state-owned companies bearing the brunt.

"The first day of the new year is the most important for general insurers since most policies are renewed on this day. But given the overwhelming concern over third-party losses we chose to meet the regulator," said the MD of a non-life company. Several private insurance companies said that they have already informed their shareholders of the need for additional capital either to meet solvency margin requirements or to make good the losses arising out of additional provisions.

The third-party insurance portfolio of insurance companies had been bleeding for over two decades after limits on compensation were removed. Although third-party premium rates have been revised, the increases did not keep pace with the increase in level of compensation. Some years back the IRDA bought time to address the issue by asking insurers to pool all the third-party business into a common fund and share the losses. Insurers were also promised that they premium rates would be increased. Over the years compensation awards rose but premium remained static. This has resulted in a gap in what the motor-third party pool has and the amount that it will have to pay out.

IRDA has told insurers that it will increase rates on third-party insurance with premium for this cover going up by 80% for commercial vehicles. While the new rate card was expected to be implemented from the first day of the fiscal when most renewals take place, The IRDA has not yet announced the tariff.

The government meanwhile has plans to introduce a legislation which will cap the liability of insurance companies. A committee headed by has recommended that compensation for accident victims be capped and the time limit for lodging compensation claims. The legislation, if it is passed in the present form, will prevent future losses.