Auto insurance premium likely to go up
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Auto insurance premium likely to go up

The Insurance Regulatory and Development Authority is planning to soon replace the current commercial third-party motor pool with a 'declined' pool.

Motor insurance
The Insurance Regulatory and Development Authority is planning to soon replace the current commercial third-party motor pool with a 'declined' pool. This is after the industry incurred a whopping Rs 10,250-crore loss last year, on account of commercial third-party motor pool losses.

This is good news for all the insurance companies, which have been suffering losses and were lobbying for dismantling of the pool for a long time. For the customers, it could mean that the cost of insuring their vehicle would go up.

"The third-party motor pool has caused inefficiencies in the claim settlement system. The customers ultimately would have to bear this burden by way of higher premiums. We have heard that there will soon be some changes in the third-party motor pool. In fact, there are active deliberations on dismantling the pool itself," says Anurag Rastogi, head of actuarial, Bajaj Allianz General Insurance.

Till now, all general insurers pooled their commercial third-party premiums and losses were shared as per their market shares. Under the new 'declined' pool system, an insurer would now be allowed to reject or 'decline' a motor insurance application and these commercial vehicles would be insured under the 'declined' pool shared by insurers. This means, owners of commercial vehicles who will be denied insurance by an insurer will have to obtain a cover under this proposed pool for 'declined' risks as third-party cover is mandatory in India.

Insurers would be free to underwrite risks independently and losses would have to be borne individually. Therefore, a more efficient risk-based pricing system taking into consideration parameters such as claim experience, age of the vehicle and frequency of the accidents would have to be developed. This can result in an increase in premiums as well.

Also, the insurers might raise the third-party auto insurance premiums across various categories to make up for existing losses.

To ensure that the insurers do not refuse applications for selective business, they would only be allowed to decline coverage to a vehicle on strict parameters such as claim experience and frequency of accidents. The 'declined' pool system is likely to be put into operation by April 2012.