The Insurance Regulatory and Development Authority's decision to implement a declined risk pool system for third-party motor insurance is likely to reduce the losses for Indian insurers, according to industry insiders.
Speaking to The Economic Times, Gopal Balachandran, chief financial officer at ICICI Lombard, said: "With a declined risk pool system, companies would be better placed to manage the risks of their motor policy accounts. So the loss incurred in the commercial vehicle third-party space should come down."
Joydeep Roy, chief executive at L&T General Insurance, told the publication that a declined pool was likely to reduce the loss ratio and bring more transparency into the system.
The IRDA unveiled guidelines on Thursday for the implementation of a declined risk pool system, which is applicable only to standalone third-party liability insurance.
The declined motor pool arrangement means that insurers would have the right to refuse to insure a vehicle, which would then be insured from a pool shared by insurers.
Under the current system, all commercial third-party premiums are pooled and losses in the commercial third-party motor portfolio are shared among all general insurance players in proportion to their market share.
The system has had a serious impact on insurers' profitability. The average loss ratio of Indian motor insurers is currently 145%.
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