The non-life insurance industry stands to lose almost three times the profit it made last year by way of additional provisions for motor third party insurance claims. The government has said that the non-life industry runs the risk of insolvency if motor insurance premiums are increased.
"The insurance companies would incur a loss of approximately Rs 2,500-3,500 crore in the current year (2010-11) on account of this (motor insurance) business of which a substantial portion will be borne by the public sector insurance companies," minister of state for finance Namo Narain Meena said in a written reply to the Lok Sabha on Friday. Last year, profits made by the non-life industry had managed to touch Rs 1204.51 crore after growing three-fold over the previous year.
"The insurance companies would incur a loss of approximately Rs 2,500-3,500 crore in the current year (2010-11) on account of this (motor insurance) business of which a substantial portion will be borne by the public sector insurance companies," minister of state for finance Namo Narain Meena said in a written reply to the Lok Sabha on Friday. Last year, profits made by the non-life industry had managed to touch Rs 1204.51 crore after growing three-fold over the previous year.
The non-life industry is suddenly staring at a Rs 3500cr hit on its profit and loss statement because it now turns out that companies had under provisioned for third-party claims by grossly underestimating the compensation awarded by courts.
In January, the Insurance Regulatory and Development Authority (IRDA) had proposed a review of motor insurance premium rates for third party liability cover. If the draft is implemented, it would result in a 10 per cent increase in premium for private cars and two wheelers and up to 80 per cent for goods carriers.
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