IRDA chairman C. S. Rao (extreme right) at a seminar in Calcutta on Friday. A Telegraph picture.

Calcutta, Jan. 30: The Insurance Regulatory and Development Authority (IRDA) will take immediate action if a private insurance company refuses to provide third party motor insurance to a customer.

IRDA chairman C. S. Rao said it is mandatory for all general insurance companies, both private and public, to provide third party motor insurance cover to customers.

He was addressing a complaint by H. S. Wadhwa, chairman and managing director of National Insurance Company. Rao was in the city to attend the annual conference on Insurance 2004 organised by the Bengal Chamber of Commerce and Industry.

Wadhwa, who is also the chairman of General Insurers Public Sector Association (GIPSA), said, “Unless the private sector participates in third party motor insurance, there cannot be a level playing field. We expect IRDA to do something to involve them (private sector) in discharging statutory liabilities.”

Currently, the entire portfolio of third party motor insurance is with the public sector companies. In this particular underwriting business, where the liabilities cannot be accurately quantified, the claims ratio is as high as 200 per cent. This business has been bleeding the four public sector general insurance companies leading to an average claims ratio of about 95-100 per cent. The premium is also low in this business.

Consequently, the public sector companies want business in the statutory sectors to be shared by the private players. Currently private insurers prefer to operate in businesses where the claims ratio is less that 70 per cent. In fact, they restrict themselves to low risk businesses — mainly fire and engineering. Underwriting these risks is low, under 50 per cent, which means a high retention of premiums.

Moreover, most of the private players prefer paying penalties levied by IRDA for not doing third party motor insurance.

Rao said that the combined growth rate of both the life and non-life sectors over the last two years is 25 per cent.

The growth rate of life insurance business has been slightly over 26 per cent and general insurance 23 per cent.

Insurance premium per capita in India in 2002 was $14.7 and overall penetration in India represents only 3.26 per cent of the gross domestic product.

Meanwhile, IRDA will submit its recommendations on the A.C. Mukherjee committee report on remuneration of brokers and agents in general insurance business in February.