Third party motor insurance set to increase from April
Our Bureauhttp://www.thehindubusinessline.com/economy/third-party-motor-insurance-set-to-increase-from-april/article5682044.ece?homepage=true
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The Insurance Regulatory and Development Authority (IRDA) has proposed a premium increase for third party motor insurance of between 25 and 137 per cent for private cars and 1-45 per cent for two-wheelers, in an exposure draft.
According to IRDA, from 2009-10 onwards, there has been a steady increase in the size of death claims in this segment. The average size of death claims in motor TP policies has seen a 27.2 per cent rise for 2012-13 (as on March 30, 2013), compared to the previous year.
Every year, in April, the insurance regulator revises the third-party premium rates for all classes of vehicles based on an actuarial formula, which takes into account the loss ratios for insurers, inflation, higher awards by judiciary, and other factors.
While third party premium rates have gone up across most categories of vehicles, in certain categories such as goods carrying private carriers (other than three-wheelers), IRDA has proposed to cut premium rates by eight to 35 per cent.
Higher provisioningIn November, the IRDA sharply increased the provisioning (the money general insurance companies need to set aside to meet the high level of claims) to 210 per cent of the claims from 145 per cent, based on the loss estimates by an actuarial committee.
A senior official from a public sector general insurance company said the industry needs at least a 50 per cent hike to see the third party motor insurance portfolio break even, as the judicial awards by courts has been rising every year.
Motor insurance in India has two components: own damage cover and third-party cover. The latter is compulsory, to cover third-party damage in terms of property or life.
While own damage is a profitable portfolio for insurance companies, third-party motor insurance is highly unprofitable with claim ratios exceeding 140 per cent.
So, due to the high claims from commercial vehicles, insurance companies provide them cover from a common declined pool and not from their own books.
Last year, third-party motor insurance rates had gone up by an average 18-20 per cent after transporters opposed the 60 per cent hike demanded by insurers.
RBI mulling exchange for receivables of small units
Our BureauThe RBI is discussing with market participants the possibility of setting up an exchange through which trade receivables of micro, small and medium enterprises (MSMEs) can be sold in the market.
Since MSMEs get squeezed all the time by their large buyers, who pay after long delays, the Governor said, “All would be better off if the MSME could sell its claim on the large buyer in the market,” RBI Governor Raghuram Rajan said at the Nasscom India Leadership Forum.
“If a trade receivables exchange is set up with fully automated acceptance of bills and auction of bills, then we can reduce the transaction cost considerably.
“The RBI has been discussing with market participants on how to do this, and, in a very short while, we should have the structure in place,” the RBI Governor said.
According to him, the key is to reduce transaction costs by automating every aspect of the transaction. Once the cost is reduced and volume of business rises, financial inclusion can be achieved.
“One of the problems with MSMEs is that they get squeezed by large buyers, who delay their payments when they are tight on credit, and they start by delaying payments to the small suppliers, who have very little bargaining power.
“Once the MSME sells its claim on the large buyer in the market, the MSME would get its money quickly while the market would get a claim on the better-rated large buyer instead of holding a claim on the MSME,” Rajan said.
Social mediaThe RBI Governor also expressed his thoughts on using the social media for better regulations and information sharing.
“Of course, technology can also offer answers to check fraud. Can we enlist social media in enabling the public to identify fraud and help regulation? How can we do this in a responsible way? Again, these are questions at this point, but I am sure we will find the answers,” Rajan said.
Keywords: trade receivables, micro, small and medium enterprises, RBI, MSMEs, Raghuram Rajan, Nasscom India Leadership Forum, social media
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