We will monitor premiums closely: CS Rao

Although premiums of motor insurance are to be detariffed from January 1, 2007 -- that is, insurers will get complete freedom to decide their premiums...

Although premiums of motor insurance are to be detariffed from January 1, 2007 8212; that is, insurers will get complete freedom to decide their premiums 8212; Insurance Regulatory and Development Authority IRDA chairman C.S. Rao says the regulator will continue to monitor motor insurance premiums closely.

The thinking behind the continuing attention of the regulator is the dominant share of motor insurance in an insurer8217;s portfolio 40-45 per cent and its wide relevance among the insured. Says Rao: 8220;I am concerned about motor insurance, as it is the most popular policy with the maximum claims. All insurers would have to get their premium rates approved by IRDA to ensure that rates are reasonable for customers. For fire and engineering, though, insurers will be given full freedom to decide the prices8221;.

Insurers, on their part, would like to see a hefty increase in the component of motor insurance. A motor insurance policy can be broken into three kinds of covers: third-party damage caused by the policyholder8217;s vehicle to other people8217;s property or lives, theft and own damage loss of or damage caused to the policyholder8217;s vehicle and cover for occupants of vehicle.

Insurance companies incur maximum claims, and hence losses, on third-party liability, an insurance that8217;s mandatory, under Section 146 of the Motor Vehicles Act, 1988 and cannot be denied by any insurer. According to an official in a state-owned insurance company, the claims ratio 8212; claims as a percentage of premiums 8212; incurred on third-party liability is about 180 per cent. That is, of every Rs 100 the company collects as third-party premium, it pays out Rs 180 towards third-party claims.

The company, in fact, is losing money on its motor insurance portfolio, with an overall claim ratio of 110 per cent. 8220;This merits an increase in third-party premium of at least 20-30 per cent for private vehicles and 100-110 per cent for commercial vehicles,8221; the official said.

But IRDA might not allow such a sizeable increase. Says KC Mishra, director, National Insurance Academy: 8220;A 100 per cent increase in third-party cover and 15-20 per cent increase in own damage is the industry8217;s expectation and perception. It is unlikely that IRDA will allow a 100 per cent increase in third-party cover premium. I think 15-20 per cent is what it will allow. In fact, it will force insurers to work on their loss-prevention techniques to lower their claims ratio.8221;

DRIVING LOSSES

038;149 Motor insurance making huge losses

038;149 Third-party liability has the highest claims ratio

038;149 To balance losses insurance companies seeking to raise third-party rates by 20-30 per cent for private vehicles and 100 per cent for commercial vehicles

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038;149 But premiums on motor insurance to be monitored by IRDA 8212; even after detariffing