issue a fresh order in place of the order it passed almost two years to abolish the third party pool system in motor insurance and follow the system of declined risk pool.
“The government is of the view that the order suffers from a manifest error. The order is set aside. The matter is remanded to the authority to pass a fresh order after following a procedure laid down in the law including full and effective consultation… under the Insurance Law,” said an order by Anup Wadhawan, joint secretary, department of financial services in the finance ministry. The order follows an appeal from the general Insurance Corporation.
Introduced in 2007, in a third party pooling 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 public sector general insurers who mostly offer the third party cover for commercial vehicles.
However, with mounting losses for insurers within that system the Irda through an order dated December 23, 2011 decided to dismantle the Indian motor third party pool with effect from 31st March 2012 and to move to the declined risk pool where all general insurers are responsible for the policies they underwrite.
An insurer told that in the five year period between 2007 and 2011 that the third party pooling system prevailed, the industry suffered losses of around Rs 8,000 crore.
Experts say that while Irda passed an order on March 22, 2012 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 Sengupta and B Chakraborti.
“Comments of two of the three members…came after the impugned Irda order of March 2012. These comments contain specific suggestions that merited consideration … Consultation should be full and effective before the order is made,” the finance ministry noted in its order.
While the Irda has pointed out that the views of the two members were supportive of its decision to dismantle the third party motor pool, experts feel that it is a procedural issue and Irda can pass the order to dismantle third party motor pool taking note of the comments of the consultative committee and put