Shedding their earlier reluctance, general insurance companies are now providing cover for commercial vehicles in a bigger way. This is seen from the size of the ‘declined risk pool’, which has shrunk to Rs 175 crores from Rs 3,500 crores a year ago. The declined risk pool is a mechanism by which insurers transfer risks they are unwilling to have on their books to a pool administered by General Insurance Corporation.
The declined risk pool was itself a replacement of the erstwhile third party motor insurance pool which was set up in 2007 to stem losses that were bleeding general insurers. Claims were often higher than 200% of the premium collected. Under the new declined pool, companies can frame their own underwriting policies and take a call on which vehicles are to be accepted on their own books and which are to be ceded to the ‘declined risk pool.
Looking at the size of the declined pool, it is just about 5% of the earlier pool. So, it has become almost insignificant and one can only infer that it will not make any difference to the market whether this pool remains or is discontinued. The reduction in the size of the pool is a positive development as it shows that now there will be no supply-side constraints for third party motor insurance.
Insurers say that declined risk pool has worked better because insurers have started retaining risks, and they have a choice in what they want to retain. The efficiency of managing claims has also improved as earlier everything was going to the pool.
However, general insurers feel that the pricing of the premium of third party motor insurance, which is determined by Insurance Regulatory and Development Authority (IRDA), is still not adequate and the impact of the retention of risk by general insurers would have to be seen over a longer term.