Insurers wilting under the weight of Motor TP Pool and Transport buses having no insurance

It is the time for ‘stock taking’ of the situation as the Companies would be counting their operating results and profits after conclusion of financial year.  Generally, Companies would be checking on their fortunes based on their operations whereas General Insurers would also be reckoning the outcome of results of operation of ‘motor pool’.  Here is something for commoners (and not for experts)

For simple understanding, a pool is an arrangement, a way of providing for high risk insurance.  When circumstances so warrant that Companies could not afford to take the risk alone, they pool their resources to have a higher capacity to bear the risk.   While coinsurance is sharing of a particular risk or a particular policy amongst many Insurers, pooling is more of portfolio sharing – that is in respect of a particular risk all that is underwritten by the members of the pool would be pooled together, administered by select members and losses / profits be shared accordingly in proportion to their contribution or in the manner so agreed.  So in such an arrangement, claims are not paid by individual Insurance Companies but the payout is from the collective assets held in the pool. In some cases, an insurance pool is established by Government mandate, to create a resource which will allow high risk candidates to obtain insurance.

In India there is the Terrorism Insurance Pool and more prominently the Motor Third Party Insurance pool.  Indian Motor Third Party Insurance Pool (IMTPIP)  was  setup by all General Insurers in India to collectively service Commercial Vehicle Third Party Insurance business.    It was an IRDA directive that effective 1st of April 2007,   all general insurers registered to carry on general insurance business (including motor insurance business) or general reinsurance business shall collectively, mandatorily and automatically participate in a Pooling Arrangement to share in all Motor Third Party Insurance business underwritten in respect of Commercial Vehicles by any of the registered general insurers.  The  share of GIC in the business underwritten for the Pool account  was to be the same share as the percentage share of statutory cessions.  The balance share of pooled business  was to be shared by all other member insurers in the same proportion as the total gross direct premium in India of the insurer in respect of all classes of general insurance business for a financial year bears to the total market gross direct premium income in India in respect of all classes of general insurance business of all member insurers for that financial year.

There has been threatening news that Insurers may have to provision thousands of crore more to comply with the IRDA directive.    Reports stated that IRDA has increased the provisioning requirements in  the TP  motor pool  and the additional provisioning would impact the UW performance of most companies.    The good news is that effective April 12, IRDA has dismantled this TP Motor pool and replaced it with a declined motor pool to reduce losses in the motor insurance segment.  As per the Declined pool arrangement, liabilities arising out of stand alone TP cover will be shared by General Insurers from the pool – the OD part will be serviced by the Insurer issuing policy and the TP part of those vehicles in their declined list would come to pool – this mechanism is expected to benefit some Insurers as they can have pricing based on their claim experience. 

The emergence of pool arrangement was necessitated as the Motor Vehicle Act makes it mandatory for vehicles on public place to have valid insurance covering third parties.  The own damage coverage is at the option of the vehicle owner.   As many Private players were not wiling to offer coverage (TP) to commercial vehicles, the concept of Motor TP pool emerged in 2007. 

Sec 146 of Motor Vehicles Act mandates that  :  “ No person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public place, unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of this Chapter:

However,  146 (2) Sub-section (1) provides that this  shall not apply to any vehicle owned by the Central Government or a State Government and used for Government purposes unconnected with any commercial enterprise.  It is further provided that  (3) The appropriate Government may, by order, exempt from the operation of sub-section (1) any vehicle owned by any of the following authorities, namely:-…. Central Govt, State Govt., local authority &  any State Transport Undertaking. 

In the State of Tamilnadu inter-district transportation and transportation within the metropolis are administered by the State Govt – Metropolitan Transport Corporation (MTC) operates buses in Chennai and there are the State Transport Corporation buses.    Cheran, Chozhan, Pandian, Pallavan, Bharathiyar, Anna, Dheeran Chinnamalai, Annai Sathya, Rajiv Gandhi and more ………… until 1996 there were as many as 21 different transport corporations catering to different parts of the State.  Each had been named after eminent leaders and famous personalities.    Today Times of India reports that despite  several attempts made by successive governments in the past, the entire fleet of Metropolitan Transport Corporation(MTC) buses, except the Volvo buses, remain uninsured. The DMK government in 2010 wanted to insure all the government undertaking buses, some 20,000 buses in all, to be insured. The plan, however, failed to take off inspite of tenders being floated.  The policy note tabled in the state assembly revealed that transport department spent a maximum of 3 lakh for every death caused by its vehicles. With the MTC alone accounting for some 100 people every year, this works out to a maximum of 300 crore. Citing cash crunch, a senior MTC official said, "We spend around 1.5 crore every month as compensation."   With limited annual budget to pay compensations, the MTC resists all court rulings, and prefers appeal against every award passed by the motor accident cases claims tribunal. "Victims of MTC vehicles get too little, too late.

May be from the point of view of MTC and the victims, it is a better option to have Insurance coverage.  But perhaps the Insurers do not think so and are afraid of the huge losses that they might incur.  The report states that in  2010, the government floated tenders inviting insurance bids from companies. However, only one company came forward, only to withdraw it later.  This clearly exhibits the reluctance on the part of Insurers to provide coverage to MTC’s fleet – with the no. of accidents, it is not worth to undertake the risk.   There have been reports of some State Transport Corporations not being able to satisfy the awards of MACT and in a couple of cases even the  buses were ordered to be taken over. 

……. And if this were to continue, perhaps it would dawn upon them to have an administered pool for covering the State Transport and Metropolitan Transport Corporation buses also – from their own / Govt administered set-up to Insurance pools adding to the burden of Insurers.

With regards – S. Sampathkumar.