The insurance regulator's move to reform the motor insurance pool to settle accident claims of victims is welcome. It will make general insurers manage these claims better and improve the health of the sector.
The reform entails dismantling the existing third-party motor pool, an arrangement where general insurers share motor accident claims according to their market share, whether or not they write motor business. From the next fiscal year, the existing pool will be replaced with a new one called declined risk pool, wherein insurers will share claims only on vehicles that are considered unfit to be insured.
This makes sense as insurance companies will have the freedom to choose risks that they want to keep on their books and cede ones that they do not want to. Safeguards are in place to protect policyholders' interests when insurers cherry-pick motor policies. An insurer cannot refuse to write a third-party motor policy and the rules say any refusal will be seen as a violation of the insurance law.
The safeguard is logical, considering that it is mandatory for every vehicle owner to buy a third-party cover. The premium will be fixed according to actuarial calculations. This is welcome, provided premiums keep pace with the actual cost of claims. That is a huge problem in motor insurance because there is no limit on the compensation or even the time for lodging claims. This must change, else, consumers will have to pay more.
Compensation awarded to road accident victims should be formula-based, with a cap on the amount and a time limit for filing a claim. This will ensure quick settlement of claims and reduce litigation. Irda has said that the current pooling system has led to an alarming depletion of capital for the industry.
This is untenable as insurers need capital to grow, meet their solvency needs and the ability to pay claims. The claims management has been inefficient and there are leakages in claims settlement. Proper audits of motor claims are a must to prevent leakages. Irda has taken the first step, but more reforms must follow to have a vibrant general insurance industry. Alongside, road and vehicle safety standards must improve.
The reform entails dismantling the existing third-party motor pool, an arrangement where general insurers share motor accident claims according to their market share, whether or not they write motor business. From the next fiscal year, the existing pool will be replaced with a new one called declined risk pool, wherein insurers will share claims only on vehicles that are considered unfit to be insured.
This makes sense as insurance companies will have the freedom to choose risks that they want to keep on their books and cede ones that they do not want to. Safeguards are in place to protect policyholders' interests when insurers cherry-pick motor policies. An insurer cannot refuse to write a third-party motor policy and the rules say any refusal will be seen as a violation of the insurance law.
The safeguard is logical, considering that it is mandatory for every vehicle owner to buy a third-party cover. The premium will be fixed according to actuarial calculations. This is welcome, provided premiums keep pace with the actual cost of claims. That is a huge problem in motor insurance because there is no limit on the compensation or even the time for lodging claims. This must change, else, consumers will have to pay more.
Compensation awarded to road accident victims should be formula-based, with a cap on the amount and a time limit for filing a claim. This will ensure quick settlement of claims and reduce litigation. Irda has said that the current pooling system has led to an alarming depletion of capital for the industry.
This is untenable as insurers need capital to grow, meet their solvency needs and the ability to pay claims. The claims management has been inefficient and there are leakages in claims settlement. Proper audits of motor claims are a must to prevent leakages. Irda has taken the first step, but more reforms must follow to have a vibrant general insurance industry. Alongside, road and vehicle safety standards must improve.
No comments:
Post a Comment