IRDA hikes insurance provisioning to 210%

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Irda has asked companies to charge themselves a 210 per cent provisioning for a high risk category of third party motor insurance risks. Irda has asked companies to charge themselves a 210 per cent provisioning for a high risk category of third party motor insurance risks.
SummaryGeneral insurance companies worry as Irda's new norm doesn’t allow raising premium.

Domestic general insurers want the insurance regulator to cut back the steep hike in provisioning it has made for the part of motor insurance which is compulsory. The higher provisioning will not raise premium rates for people buying motor insurance but it will raise costs for insurance companies.

The Insurance Regulatory and Development Authority (Irda) has asked companies to charge themselves a 210 per cent provisioning for a high risk category of third party motor insurance risks. It is 110 per cent so far.

General insurance companies are now in a fix since they cannot charge a commensurately higher premium to make up for the cost but will instead have to provide for it from their profit.

A notification issued on November 18 by Irda said a special committee formed by the regulator has recommended the higher ratio for what is known as the Declined Risk Pool.

From this pool, the claims against those commercial vehicles are paid which do not have an insurance cover. Under the Indian Moter Vehicles Act all vehicles plying on roads must at least have a third party insurance. But because of their high claims ratio companies often decline them insurance. So the money in the pool provides cover for them. The companies provide the sum in a proportion to their motor portfolio. This also reduces the pressure on public sector insurance companies which were otherwise compelled to provide the cover and run up major losses. Currently, the size of the Declined Risk Pool is around Rs 400 crore.

The insurers have already taken up the issue of higher provisioning with the Irda. “Else we should be allowed to charge higher rate for third party motor business where pricing is regulated by the IRDA,” said the CEO of an insurance firm.

The average loss ratio for the third party motor business is in the range of 140-150 per cent. Effectively, a general insurer pays a claim of Rs 150 out of a Rs 100 premium.

“Till now the general insurers were providing for the standard third party portfolio on the basis of their own actuarial valuation. The Irda norm of 210 per cent on the provisioning for the Declined Risk Pool is a clear cut indication that the regulator wants higher provisioning for the other segments of motor business too,’’ said the chairman and managing director of a public sector general insurance company who didn’t want to be named. Irda

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