A working group of the insurance regulator, IRDAI, has recommended that motor third party (TP) obligation of non-life insurers be determined, based on the number of vehicles insured.
Each non-life insurer is mandated to write a certain amount of motor TP business every year. Currently, the motor TP obligation is based on the premium income an insurer collects in any given year in this class of business.

“Motor third party insurance being an integral part of every individual vehicle, the monitoring of insurance of such vehicles (by every insurer) most appropriately should be on the basis of the count of such insured vehicles rather than (indirect/derivative) evaluation of premium derived from the insurance of such vehicles”, the working group said in its report.

Vehicle categories

The working group has recommended three broad vehicle classifications – two wheelers, private cars, and others, and that the motor TP obligation for each insurer should be arrived at for each vehicle category.

Sajja Praveen Chowdary, business head of Motor & Travel at Policybazaar.com, said, “So now, no longer can insurers underwrite a larger ticket size of private cars or commercial vehicles and cover up for two-wheelers.”

This is because the current basis of relying on premium collected does not reveal the vehicle types covered by an insurer. Thus, insurers are inclined to underwrite risks of certain kind of vehicles which may be more profitable than others.

In the new formula, each insurer’s obligation will depend on their market share as well as the number of uninsured vehicles of as determined by Insurance Information Bureau of India for each category of vehicles. So, large insurers have to underwrite more TP business.

The change in formula will mean that insurers will be mandated to write additional business to get uninsured vehicles covered by motor TP insurance.

A 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 are started, the working group said.

The insurance regulator is seeking feedback from stakeholders till 8 May on the recommendations of the working group.

A report published by the Insurance Information Bureau of India said that out of around 220m vehicles in India as at 31 March 2019, the percentage of uninsured vehicles was 58%, even though auto TP cover is mandatory in the country. The percentage of vehicles which do not renew their insurance after the first year is high at 52% on average. Nearly 70% of the total number of vehicles in India consist of two wheelers, the working group report notes. Currently, two-wheelers form the bulk of vehicles plying the roads without insurance coverage. 

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