A working group of insurance regulator IRDAI has mooted a change in the formula to decide the obligation of insurers in respect of Motor Third Party (MTP) insurance business.
It has recommended that the obligation should be a function of “number of vehicles insured/uninsured” instead of “premium derived from MTP insurance business”.
Accordingly, it has proposed a simple and equitable formula for calculating the obligation, IRDAI has said, inviting feedback from the stakeholders on the report of the group.
Figuring in the recommendations are also time-bound exemptions for new players. Those underwriting MTP insurance for the first time may be exempted from application of the obligatory requirement during the first two financial years of their operations. The group also favoured the introduction of an MTP credit system in line with the carbon credit system.
Constituted in August, the working group’s mandate was to revisit the existing, four-year old regulations. Setting the backdrop was a recent Supreme Court judgment on issuance of long-term MTP policies as well as concerns raised by many stakeholders on the existing structure and a need for review of the regulations.
One of the concerns was that the existing formula does not indicate or monitor the percentage of insured vehicles to total vehicles plying on the road. It does not ensure an increase in penetration under each category of vehicles. MTP obligations are also not known to the general insurance companies in advance thus making it difficult to plan their obligations.
The Working Group noted that while TP liability insurance of all motor vehicles is compulsory under the Motor Vehicles Act, non-insurance of motor vehicles is a hard reality. According to Insurance Information Bureau of India (IIBI), the number of vehicles plying in the country was about 22 crore as on March 31, 2019. The percentage of uninsured vehicles was almost 58% and largely comprise two wheelers. Private cars are largely insured and the uninsured number is about 10%.
The percentage of vehicles that do not renew their insurance after the first year is high at 52%. It is again due to the fact that two-wheelers fall out of the insurance net at the time of first renewal of the insurance policy.
