IRDA plans to free up motor third-party rates
03 Mar, 2014 02:02 PM
The insurance regulator has drawn plans to free up pricing of motor third-party (TP) cover from 2015 even as insurance companies have raised objections to the proposed new rates set to come into force from April 2014. Detariffing of the third-party cover will enable insurance companies to fix rates according to each company's experience of profitability.

Motor third-party insurance is the only cover where rates are specified by the regulator under a tariff. In all other businesses, including motor own damage (cover against damage to vehicle), pricing is decided by companies.

Responding to IRDA's proposal to free up third-party tariff, R Chandrasekaran, secretary general, General Insurance Council, said, "The industry feels that for detariffing to work, there should be changes in the law to reintroduce laws of limitation and jurisdiction on MACT (Motor Accident Claims Tribunal) claims and there should also be a cap in respect of the statutory liability. Only then will insurance companies be in a position to offer competitive pricing for TP premium within reasonable range, based on claim experience."

On the rates proposed under the new draft tariff, Chandrasekaran said, "Our experience is that the exposure draft does not reflect the reality in respect of claim trends among commercial vehicles in the goods and passenger segments. We have done our own calculations based on the industry data which shows that premium in these segments should also rise," said Chandrasekaran. "Since the IRDA calculations are based on industry claim numbers, one possibility is that the difference could be on account of more conservative assumptions in respect of future claim trends," he added.

Sources close to IRDA said that differences would exist as industry assumptions were based on expectations that awards will continue to rise. They add that detariffing will address the industry's concerns.

In the draft tariff for 2014-15, cars below 1000cc, such as the Maruti Alto and Hyundai Santro, will see their premium rise 136% while the rates will rise by a little over 25% for private cars with engine capacity of over 1500cc. Goods vehicles with gross vehicle weight between 7,500 kg and 12,000 kg will see their premium fall by nearly 14% and buses will see their premium come down by 2%.

"The revised premium has to take into account future tribunal awards as well and these awards may take place in 2025 considering that we have recently seen a claim being awarded pertaining to an accident in the '90s," said Chandrasekaran. That shows the extent of inflation that needs to be factored in while determining the price of the policy.
Source : The Times Of India

© Copyright Loyal Insurance Brokers Ltd 2008. License code no. DB 328/05. All Rights Reserved. Insurance is subject matter of Solicitation.