Last week finance ministry came out with an order canceling the Insurance Regulatory and Development Authority’s (IRDA) 2011 order to withdraw third party motor insurance pool has created jitters and confusion among general insurers. General insurers are not ready to go back to pooling system which saw them bleed for several years.
The government has directed the IRDA to issue a fresh order in place of order it passed almost two years ago to abolish the third party pool system and follow the system of declined risk pool. The government is of the view that the order suffers from a manifest error.
Insurers say that going back to the pooling system is out of question. However, they say that IRDA may come up with a fresh order on the ongoing system –declined risk pool-soon, thereby putting at rest speculations around the re-introduction of third party insurance pool. Insurers say that there seems to be a small procedural anomaly in the IRDA’s order in 2011. The government move has provided IRDA with the leeway to rectify the same.
Third party motor insurance pool system prevailed for almost five years from 2007 to 2011 and had aggregated losses to over Rs 8,000 crores. The IRDA decided to do away with the pooling system in December 2011.
In the third party motor pool system, the premium pertaining to the third party risk is collected by all general insurance companies and the claims are met from the same by the psu general insurers who mostly offer third party cover for commercial vehicles. In declined risk pool, all general insurers are responsible for the policies they underwrite.
Insurers say that they will continue to follow the ongoing process till the IRDA notifies them to do it otherwise. Insurers say that they are bound only by the IRDA order, so till the time IRDA asks them to not follow the current system and move back to the old one, they will follow the ongoing system.
While IRDA passed an order on March 22, 2014 stating the methodology of transfer of risks among members of Indian motor third party declined risk insurance pool, the finance ministry’s decision states that IRDA did not follow the mandatory legal procedure in its order and did not take into account the views of a consultative committee appointed for the purpose that included GN Bajpayee, D Sen Gupta and B Chakraborti. Comments of two of the three members came after the impugned IRDA order of March 22, 2012, these comments contain specific suggestions that merited consideration consultation should be full and effective before the order is made.
However, the IRDA pointed out that the views of the two members were supportive of its decision to dismantle third party motor pool.