By IANS,
Chennai : Removal of administered pricing mechanism and capping of liability on third party motor insurance figure in the wish list that heads of non-life insurance companies will present to Finance Minister P. Chidambaram in New Delhi Monday.
Their other demands are withdrawal of service tax on reinsurance, allowing banks to sell more than one non-life insurer’s products and extension of tax benefits to other policies.
Chidambaram, announcing measures for the life insurance sector after a meeting with company heads Oct 1, had said a similar meeting would be held for non-life insurance sector.
Senior officials from Insurance Regulatory and Development Authority (IRDA) will also attend the Monday meeting.
According to industry officials, the chief executive officers (CEOs) of the insurance companies would hold their own meeting Sunday to finalise the issues to be discussed with Chidambaram the next day.
Amarnath Ananthanarayanan, CEO and managing director, Bharti Axa General Insurance Company, told IANS that third party premium on motor vehicles was inadequate since liability under the policy was unlimited as per the Motor Vehicles Act.
“Earlier, courts use to award compensation to family of a road accident victim taking into consideration the person’s past earnings. But now, courts take into account victim’s earning potential,” CEO of a private non-life insurer told IANS on conditions of anonymity.
He said companies were not allowed to charge adequate premium because IRDA had fixed the rates.
Technically though, there is indefinite liability for non-life insurers to third parties, while the premium is definite, say industry officials.
The average pay out per third party claim for the industry is said to be around Rs.200,000.
When asked why the industry can’t come out with a premium rate for that pay out, the official said: “I won’t know who will meet with an accident and the kind of liability the company will have to foot that year.”
He said the risk profile of each company would differ and they should be given the freedom to fix the rates.
“APM (administered pricing mechanism) and free market economy do not go together. Hence the motor third party premium rates should be freed,” K.K. Srinivasan, a former IRDA member, told IANS.
“But given the reckless underwriting behaviour of our insurers, there is a danger of under-cutting and falling into a deeper morass. But that will be of their own making,” he said.
The other issue is deduction of service tax on reinsurance premium.
“Overseas reinsurers do not agree to pay service tax on reinsurance premium whereas income tax department has told insurers to deduct tax at source. Hence, service tax on reinsurance premium should be scrapped,” official of a private life insurer told IANS not wanting to be named.
The other welcome move would be the system of use and file in respect to new products, Ananthanarayanan said.
Chidambaram had said IRDA, in consultation with life insurers, might introduce the use and file system and identify/design certain standard products which could be used by the industry under the proposed system.
The other issue non-life insurers might raise is calculation of solvency margin by including outstanding premium under Rashtriya Swasthya Bima Yojana, a government health insurance scheme for the poor.
Insurers get their premium from the government after a long delay whereas solvency norms stipulate that any dues outstanding for more than three months should not be taken into account for calculating the solvency ratio, an official of a private insurer said.