Irdai panel moots linking 3rd party insurance to number of vehicles covered

HYDERABAD: Has your vehicle’s motor insurance cover lapsed? If yes, you may get a call from an insurance company soon offering to renew the cover. As per the working group’s (WG) recommendations to the Insurance Regulatory and Development Authority of India (Irdai), the obligation of general insurance players to offer motor insurance must depend on the number of vehicles insured or uninsured instead of the premium derived from motor third party (MTP) insurance business.

In order to encourage new insurers, the WG has recommended that the new insurer licensed to underwrite motor insurance for the first time may be exempted from the application of the obligatory requirement during the first two financial years of its operations, including the financial year in which its operations begin.

The WG, in its report, stated that there was a need to revisit the existing rules because the current MTP obligation is not known to the insurers in advance as the audited data required for the formula is not available till the middle of the fiscal. Therefore, a standard formula helping insurers to assess their obligation at any point of time in the year was needed.

The WG said that the prevailing annual MTP obligation of the insurers is based on the quantum of premium collected in any given year out of MTP business, which neither represents the penetration of MTP insurance nor does it boost penetration.

As the premium difference between vehicle segments is very high, the collection of higher premium does not necessarily mean a larger number of vehicles have been covered. As a result, a major chunk of two wheelers could not be brought into the insurance net, it noted.

As per Insurance Information Bureau of India (IIBI) data, of the around 22 crore vehicles plying on Indian roads as on March 31, 2019, 58% are uninsured. The uninsured vehicles largely comprise two wheelers, where 63% remain uninsured, while the overall percentage of vehicles that do not renew their insurance after the first year stands at 52%. “Two wheelers contribute a major chunk of uninsured vehicles and yet nearly 25% of the total TP claims reported are caused by two wheelers. This is a major concern and menace,” it said.

As per industry experts, the recommendations will boost demand creation as the insurers will now have to work towards ensuring that more vehicles are covered. “Earlier there was a supply-side constraint that has now being bridged and now the effort will be on improving the distribution so that more vehicles are covered,” the expert said.

The WG has also recommended that MTP credit system in line with the carbon credit system may be introduced for the first two years.

Source: The Times of India