To,
All General Insurers,
Sub : Motor Third Party Insurance
Whereas several complaints have been received regarding non-availability of motor third party insurance especially for commercial vehicles;
And whereas insurers have been expressing difficulty to underwrite this business unless they are permitted to charge premium rates that they consider appropriate;
And whereas considering the mandatory nature of motor third party insurance business it is necessary for the Authority to monitor the rates, terms and conditions of cover for the time being;
And whereas it is in public interest to ensure that all insurers registered to carry on general insurance business including motor insurance business actively participate in providing such cover to vehicle owners at rates as notified by the Authority from time to time;
Now therefore, the Authority, after consultation with the Committee constituted under Section 110G of the Insurance Act, hereby directs that all general insurers registered to carry on general insurance business (including motor insurance business) or general reinsurance business shall collectively participate in a Pooling arrangement to share in all motor third party insurance business underwritten by any of the registered general insurers in accordance with the following provisions:
1. Participation in pooling arrangement: Every insurer registered to carry on general insurance business (including motor insurance business) or general reinsurance business shall automatically participate in the pooling arrangement to the extent set out herein.
2. Underwriting insurers: Every underwriting office of every insurer that is authorized to underwrite motor insurance business for the insurer shall also be authorized to underwrite motor third party insurance business that will be shared among all insurers through the pooling arrangement.
3. Pooling mechanism: The pooling of business among all insurers will be achieved through a multi-lateral reinsurance arrangement between the underwriting insurer and all the other registered insurers carrying on general insurance business (including motor insurance business) and general insurance reinsurers.
4. Participation in motor third party insurance pooled business: The participation of General Insurance Corporation of India (GIC) in the Pooled business shall be such percentage of the motor business that is ceded to it by all insurers as statutory reinsurance cessions under Sec 101A of the Insurance Act. The business remaining after such cession to GIC shall be shared among all the registered general insurers writing motor insurance business in proportion to the gross direct general insurance premium in all classes of general insurance underwritten by them in that financial year.
5. Underwriting of business: Underwriting offices of insurers shall follow the underwriting instructions of the General Insurance Council in the matter of procedures for underwriting and documentation and accounting and settlement of balances. The business shall be underwritten at rates and terms and conditions of cover as notified by the Authority from time to time. No vehicle owner shall be denied third party insurance cover in respect of his vehicle which is holding a valid permit for use on public roads except on grounds of attempted fraud.
6. Claims processing and settlement: All claims in respect of third party death or injury or physical damage shall be processed for settlement in a speedy and efficient manner in accordance with the instructions of the General Insurance Council. For this purpose, the Council shall adopt a pro-active claims settlement policy adopting the most efficient claims processing practices possible.
7. Administration of the Pooling arrangement: The GIC shall act as the administrator of the pooling arrangement. It will act under the guidance of the General Insurance Council. For this purpose, the Council may establish such Committees of insurers as are necessary to operate the Pooling arrangement and process and settle claims in the most efficient manner.
8. Remuneration: There will be no agency commission or brokerage payable in respect of motor third party insurance business. The underwriting insurer will be paid a reinsurance commission of 10% on the premium ceded by it to all the other insurers and reinsurers. The GIC as administrator shall be paid a fee of 2.5% of the total premium on motor third party insurance business in respect of the business underwritten for the pooled account. Each insurer shall bear the cost of hardware required to operate the pooling arrangement within its offices. The GIC will bear the cost of hardware necessary to administer the pooling arrangement in its offices. The cost of the operating software for the pooling arrangement shall be shared by all the insurers and reinsurers in the manner decided by the General Insurance Council. Each insurer shall bear the cost of travel of its executives to attend to the work relating to the pooling arrangement. However, any travel specifically to service a claim shall be recoverable as claims related expenses.
9. Agreement: The insurers and GIC shall enter into a multi-lateral reinsurance arrangement to give effect to this pooling scheme.
10. Review: The Authority will review the operation of the pooling arrangement and the need for regulation of the premium rates and terms of cover and will issue such directions from time to time as may be considered necessary.
(C. S. Rao)
Chairman