Having realised that the losses for general insurance companies were only rising on account of the third party motor pool system that prevailed for almost five-year period between 2007 and 2011 and had aggregated losses to over Rs 8,000 crore in that period, the Insurance Regulatory and development Authority (Irda) decided to do away with the pooling system in December 2011 bringing much relief to the industry that had been asking for the same.
However, the last week’s order from the finance ministry to cancel the Irda’s 2011 order to withdraw third party insurance pool in motor insurance has created jitters as well as confusion among the general insurers who do not seem to be ready to go back to the pooling system which saw them bleed for several years.
While they maintain that going back to the insurance pool system is out of question, there is a feeling within the industry that Irda may come up with a fresh order on the ongoing system — of declined risk pool — soon, thereby putting at rest the speculations around the re-introduction of third party insurance pool in motor insurance.
“There is no comment by the finance ministry on the Irda order and there seems to be a small procedural anomaly in the order passed by the insurance regulator in 2011. The government’s move now only provided Irda with the leeway to rectify the same,” said the chief executive officer of a large general insurance company.
There is, however, no clarity on the process that the companies will follow for the time being while settling the claims.
“Only Irda can decide on what is the process that insurer’s should follow and till now we have not received any communication from the regulator,” said an insurer.
Another insurer told that they will continue to follow the ongoing process till the regulator notifies them to do it otherwise.
“We are bound only by the Irda order, so till the time Irda asks us to not follow the current system and move back to the old one followed between 2007 and 2011, we will follow the ongoing system,” said the insurer.
Some are of the opinion that Irda may soon come up with an order with the desired corrections and the ongoing system will prevail. The industry is therefore waiting eagerly for the next move of Irda.
Earlier in the week the government directed the regulator to 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 …continued »