FinMin cancels Irda order withdrawing third-party pool

FinMin cancels Irda order withdrawing third-party pool

According to a top level source in one of the affected companies the new orders could come well after the elections are over.

In a setback for reduction in losses on motor insurance, the finance ministry has rescinded the insurance regulator’s decision to withdraw third party insurance pool. The move will give a temporary benefit to the transport operators ahead of the general elections.

The ministry has directed the regulator to issue a fresh order two years after the pool system was abandoned.

“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.

Third party motor cover—an insurance cover to pay for death or disability for a road accident — is mandatory for all vehicles plying on Indian roads. But as the insurance cover was costly, the Insurance Regulatory and Development Authority developed a pool system to pay for the claims of commercial vehicles.


Under this system, mostly the public sector general insurers offer third party cover for commercial vehicles and pay the claims from a pool which is contributed to by other insurance companies. It was introduced by the Irda in 2007 but was highly unprofitable for private insurers and is estimated to have shaved off over Rs 7,000 crore from the turnover of the industry.

Irda accordingly had abandoned the system in December 2011 and moved to a declined risk pool where all general insurers are responsible for the policies they underwrite. But the finance ministry has held this move invalid on a technical ground. The order is based on an appeal by the General Insurance Corporation.

A source in the General Insurance Council told The Indian Express, “The finance ministry order has been passed today. We cannot comment on it.” An official with a private insurer said. “As of now, we will follow the system of declined risk pool. The Irda has the power to re-issue the orders and we will wait for it.”

With motor insurance providing about a third of the revenue to general insurers, private firms will now have to await Irda’s fresh directive.

The new system was expected to raise motor premium for trucks and buses by at least over 130 per cent. This has been protested by the transporters’ associations. The finance ministry decision means they get an elbow room.

According to a top level source in one of the affected companies the new orders could come well after the elections are over.

A two-member panel of joint secretaries from the department of financial services and the department of legal affairs in the finance ministry has said that the Irda did not follow the mandatory legal procedure in its order and did not take into account the views of a consultative committee appointed for the purpose that included GN Bajpayee, D Sengupta and B Chakraborti.

“Comments of two of the three members…came after the impugned Irda order of March 2012. These comments contain specific suggestions that merited consideration …Consultation should be full and effective before the order is made,” the finance ministry order noted even though Irda, on its part had pointed out that the views of the two members were supportive of its decision to dismantle the third party motor pool.