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General insurers should stop undermining losses; says IRDA

General insurance india policy mantraInsurance Regulatory and Development Authority (IRDA) has asked general insurance companies to bring to an end on unhealthy marketing practices such as offering huge discounts to gain top line; as per IRDA it could lead to financial troubles for the companies.

Earlier premiums for insurance policies were regulated as it were decided by Tariff Advisory Committee (TAC). But after detarriffing of the rates companies in order to gain new customers offered huge discounts to such extent as in fire insurance policies discount can go upto 70%.

As per IRDA most of the companies are underwriting losses hence it has asked insurers to improve their practices by stopping such unhealthy competition and companies should not focus just only on top line. For FY’11 underwriting losses for general insurance industry were estimated approximately Rs 10,000 crore.

As per general insurers also these huge discounts are not feasible for them in long term and it will take 3-5 years for them to break even. Hence they will have to move to risk based price mechanism with more deductibles.

To improve the transparency in reinsurance contracts IRDA will introduce comprehensive online platform from May next year. Through reinsurance general insurance companies insure their risks with reinsurers. Term of the policies is decided between insurers and reinsurers therefore it is not monitored so closely hence online platform will help to monitor that exchange of information between insurers and reinsurers is transparent.

IRDA increases premium rates for third-party motor insurance

Source: Business Standard

The Insurance Regulatory and Development Authority (IRDA) raised the premium rates for third-party motor insurance policies by 10-65% across different categories of vehicles and ownerships effective from 25th April 2011.

While third-party premiums for personal cars and two-wheelers were raised by 10%, new premiums for commercial vehicles would be higher by 65%.

Third-party motor premiums for commercial vehicles rose for the first time in four years. Third-party motor premiums in India are regulated by Tariff Advisory Committee, a constitutional body under IRDA.

Irda also specified third-party motor premiums would be revised annually, based on inflation and claim experience. Third-party premium rates for commercial vehicles were stagnant for the last four years, owing to opposition from transport unions. This resulted in an accumulated loss of Rs 3,500-5,000 crore for general insurance companies and adversely impacted their solvency margins.

Get Ready to Pay More for Thrid-Party Motor Insurance

IRDA is planning to introduce new index based policy for third-party motor insurance premiums and it will raise premium for third-party motor insurance by 50-80% this year. Ultimately insurers will not have to negotiate with transport unions every time they want to raise rates.

Third-party motor insurance premiums in India are regulated by a constitutional body – the Tariff Advisory Committee (TAC) under IRDA. TAC has not increased the premiums for the last four years due to opposition from transport unions and it has impacted badly on general insurers as they were losing Rs. 3,500-5,000 crore, which is affecting their solvency margins. Solvency margin is the extra capital an insurance company is required to hold and determines its ability to settle claims.

The proposed index will take into consideration factors such as minimum wages, cost of living and key drivers of the claim cost like the income of the claimant. Once the index is ready, all stakeholders -insurers, IRDA, the government and transport unions- will meet at the end of the year to revise the rates on the basis of changes in the index.

The new calculation shows that the loss ratio for third-party motor insurance is around 180% and the total accumulated losses could go up to Rs. 5,000 crore by the end of this financial year so the minimum increase required to offset this loss is 80%. That’s the reason government is opting for index based third-party premium.