3rd-party motor pool provisioning to rise

The insurance regulator favours an increase in the reserves or provisioning required for third party motor insurance portfolios of non-life insurance companies.

“The motor pool losses are quantified through an actuarial method. Irda feels the provisioning done by various companies are much lower than the actuarial results show. Certain aspects of the calculation require some re-examination. Our estimates are showing an underestimated figure. This gap should be bridged well by the insurance companies,” J Hari Narayan, chairman, Insurance Regulatory and Development Authority (Irda), said at an event organised by the Confederation of Indian Industry on Wednesday.

The third party motor pool built by a non-life insurance company meets its claims payment requirement for third party liabilities. The provisioning or reserves signify the buffer it has to provide such covers.

According to Section 146 of the Motor Vehicles Act 1988, any vehicle that plies on the roads needs to have a third party insurance cover.

Irda had earlier increased the provisioning to 153% from 126% for commercial vehicles.

An independent actuarial report from the UK had said the provisioning requirements for Indian general insurers were very low. They must be increased 175-200%, it said.

G Srinivasan, chairman-cum-managing director, United India Insurance Co Ltd, suggested an increase in premiums, too.

“Premium for the third party liability cover should be increased to 60-70%,” he said.

“The premiums of third party cover may go up by April 2012. The insurance industry and the regulator have approached the commercial vehicle lobby for increasing motor third party insurance premiums,” said Ashvin Parekh, partner and national leader, global financial services, Ernst & Young.