Insurance: Motor pool system should be abolished

Insurance: Motor pool system should be अबोलिशेद

With the increase in claim ratio in the motor segment, it is hightime for the regulatory authority to discontinue the motor pool and let the general insurers manage the claims themselves, says SS Gopala Rathnam, managing director, Cholamandalam MS General Insurance Company in an interview with FE’s R Ravichandran. Excerpts:

Ho do you see the growth of general insurance industry?

For the nine-month period ended December 2010, the general insurance industry has grown by 22% to Rs 35,000 crore and is expected to end the current financial year with the same growth to Rs 42,500 crore. The growth is largely driven by motor, health, commercial followed with fire, engineering and marine sectors. Motor and health insurance hold the major chunk of the growth with 65% of the total business, followed by others. The industry is expected to grow at a CAGR of 15% over the next three years to touch Rs...68,000 crore owing to overall buoyancy in economic activities and higher disposable income.

There has been apprehension among general insurers on increasing claim loss ratio owing to motor pool contribution. Can you explain it?

The claim loss ratio has gone up sharply to 127% over the years and is expected to touch 160% if the existing pattern continues. Last year alone the industry had to incur Rs 650 crore loss as the claims overshot the seeding premium to third party motor pool. Since 2007, the industry had to lose around Rs 1,800 crore owing to various reasons. We are in talks with transport companies on claims aspect. Irda should abolish the motor pool and allow the individual companies manage their own claims or allow increase in third party premium. A committee is working on this issue.

How have been the industry's claim ratio and why the growth is...not happening as expected?

Private insurers are comparatively better placed in managing their claims. The claim ratio is 80% as comapred to public sector insurers claim ratio of 88% despite increase in prices. The major factor affecting the general insurance industry's growth owing to the people's tendency in not renewing their insurance for vehicles after initial period of one year. Nearly 75% of the two-wheelers sold are not renewed and nearly 45% of the cars sold are not renewed after first year. We have asked Irda to make it mandatory for a vehicle buyer to have a minimum of three to five year policy as the level of accidents are going up. Nearly 3% to 4% increase in claim ratio has been due to these accidents.

What are your growth plans?

We expect to end the financial year with Rs 950 crore business and a growth of 22%. Motor holds 60%, followed by..