Insurers to lose 3.5k cr on motor claims

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 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.

Insurer liable till vehicle owner's name is in register

The Supreme Court held last week that the insurance company will be liable to pay compensation for road accident death even if the owner had sold the vehicle so long as his name is the official register. The previous owner might have handed over possession of the vehicle to the buyer, but he and his insurer continued to be liable to pay compensation to third parties if the insurance policy is in his name. In this case, Pushpa vs Shakuntala, the owner sold the truck to another person. But the vehicle was insured by Oriental Insurance Company in the previous owner's name. There was an accident killing three persons. Their dependents moved the motor accident claims tribunal against Oriental and the previous owner. The tribunal and the Himachal Pradesh high court held that the previous owner had no liability as he was no longer the owner of the vehicle. They ruled that the new owner alone was liable to pay. The dependents appealed to the Supreme Court. The insurance company argued in the Supreme Court that the liability should entirely be that of the new owner as the old owner had lost control of the vehicle after the sale. Reversing this view, the Supreme Court made the insurance company liable to pay the compensation amount.