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Premia jolt to rogues at the wheel

New Delhi, Feb. 23: Insurance firms may be allowed to charge a higher motor insurance premia from bad and at-risk drivers.

The industry regulator — Insurance Regulatory Development Authority (IRDA) — will shortly form an internal committee that will examine the pros and cons of allowing insurance firms to charge double the base premium on the basis of risk perceptions relating to driving skills.

The insurance firms, which are losing money hand-over-fist on their motor insurance portfolio, have been demanding that they be allowed to load up the premia for bad drivers. The insurers pay out more by way of claims than they collect from insurance premia — sometimes by as much as 300 per cent.

At a meeting held last week between the regulator and the general insurance companies, insurers complained that they were “bleeding” in paying out motor claims.

“We have requested the regulator to allow us a 100 per cent premium loading on risk perception of the vehicle as our claims payout is invariably more than the premium earned. Also, under chapter 8 of the Amended Motor Vehicle Act (MVA) 1998, there is no cap on the liability, which makes things even worse,” General Insurance Corporation managing director P. Ramanujam told The Telegraph.

“The insurers have requested us to look into the matter. We are still weighing the options,” IRDA chairman N Rangachary said. “It is not right to directly impose a 100 per cent loading based on risk perception as that may prove to be biased. But we can think of an arrangement that provides for different slabs based on graded risks.”

However, insurance firms say the motor tariff regulations clearly states that “loading on tariff premium rates by 100 per cent may be applied for adverse claim experience of the vehicle insured and individual risk perception as per the insurer’s assessment. If the experience continues to be adverse, a further loading of 100 per cent on the expiring premium may be applied. No further loading shall apply.”

Last October, the IRDA had received complaints from various transporters that both public sector and private general insurance firms were charging premium as high as 200-300 per cent. This prompted the IRDA to issue a notification clarifying that no loading would be permitted in cases where there have been no claims. It also permitted a maximum loading of 100 per cent on loss-making policies in the first year which could be increased by another 100 per cent in the following year.

Outlining the ongoing reforms, Rangachary recently announced “motor insurance business would be freed from the administered tariff regime gradually ... hopefully by April 2004.”

Penalty on erring firms

IRDA is planning to inflict penalties on some insurers for violating norms, including incurring higher management expenses, breach of motor tariff charges leading to higher premium payment by consumers, adds PTI.

PSU general insurers may be hauled up for charging higher motor insurance premium while some private firms may be pulled up for higher management expenses.

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