The third-party pool was set up in April 2007 by the general insurers to collectively service commercial vehicle third-party insurance claims, the payouts under which have gone up from R675 crore to R3,615 crore in a year.
Rattled by the huge losses, the General Insurance Council the official representative body of the general insurers has called a meeting to discuss the issue and suggest ways to deal with the situation to the Insurance Regulatory and Development Authority (Irda).
The insurers will also debate whether the third-party pool should be done away with altogether, so that they could go back to the earlier system where each company managed its own business.
Insurers say the pool was created to remove supply side constraints in the commercial vehicle third-party insurance. Though the pool has helped tackle supply constraints, the negative side has been the lack of interest among insurers in handling the pool claims efficiently. Also, due to the strong arm tactics of truck operators, Irda has never allowed normal pricing for the portfolio, which contributed to the higher TP pool claims, said a general insurer representative.
The insurers will also discuss the Irda proposal to raise the provisioning for the third-party motor business in the range of 50-60%. The Irda believes that general insurers are under-providing to secure more profit.
The third-party motor business is mandatory for all general insurers as all vehicle owners have to take third-party cover. Since, there is a time lag between the origin and payment of claims, Irda has made it mandatory to make provisions for it. A British actuary, commissioned by Irda to find out the ideal provisioning for the third-party motor business, recently recommended that it be raised from the existing 153% to 205%. In 2010-11, 20 member companies, including GIC Re, were part of the pooling arrangement. The total premium pooled for the year 2010-11 (March 2010 to February 2011) was R3,612.57 crore for 97.31 lakh policies.
The incurred claim amount was R7,111.28 crore, with an operating loss of R3,614.85 crore for the insurers. The total premium pooled for 2009-10 (March 2009 to February 2010) was R3,160.09 crore for 87.68 lakh policies. The incurred claim amount was R3,791.38 crore, with an operating loss of R673.96 crore.