Download PDF - IRDA

ANNUAL REPORT 2011-12
Formation of Indian Motor Third Party Declined Risk
Insurance Pool:
23. The Authority issued an Order in December 2011 and
created a declined risk pool for Liability Only Commercial
Vehicle Third Party Insurance with effect from 1 st April,
2012. The purpose of creating the Indian Motor Third
Party Declined Risk Insurance Pool for Commercial
vehicles (Act only Insurance) is (a) Equitable and fair
sharing by all insurers; (b) No supply side constraints; (c)
Simple to administer; and (d) To bring claims management
efficiency. The Pool shall apply to the commercial vehicles
for standalone third party liability insurance. No
comprehensive motor insurance policy or part thereof
shall be ceded to the Pool. All existing general insurers
and every newly registered general insurer shall
automatically be admitted as member of the Indian Motor
Third Party Declined Risk Insurance Pool (Declined Risk
Pool) and specialist insurers not licensed for motor
insurance business shall not be members of the declined
risk pool. GIC shall act as the pool administrator of the
Declined Risk Pool.
24. The premium for declined risk pool shall be
determined in accordance with the actuarial principles
which shall be used by all the insurers and shall be notified
by the Authority from time to time.
Trade Credit Insurance:
25. The Authority issued trade credit insurance guidelines
during 2010-11 in order to ensure orderly growth of this
sector on sound insurance principles. The salient features
of the guidelines include definition of various terms
associated with trade credit insurance and the scope of
cover under trade credit insurance policy. The guidelines
specify basic requirements of a trade credit insurance
product which include that the policyholder should
necessarily be a supplier of goods and services; and the
cover should provide for indemnity for loss suffered due
to non-receipt of trade receivables. The guidelines also
specify conditions on trade credit insurance from insurer’s
perspective and policyholder perspective which include
that this policy cannot be issued to banks/fi nanciers/
lenders or where they are a benefi ciary of the claim or
where the proceeds of the claim are assigned to them. A
Trade Credit Insurance policy can be sold to a seller on
a whole turnover basis. There shall be pre-credit limits
for each buyer fi xed by the insurer and also an overall
limit under the policy. An insurer is required to appoint a
credit management agency for assessing credit
worthiness of the policyholder, which shall have no conflict
of interest with the policyholder.
26. No specific trade credit insurance policy can be sold
to a single prospect. Trade credit insurance shall not offer
indemnity which is more than 80 per cent of the trade
receivables of the buyer or 90 per cent of the cost incurred
by seller for previous year, whichever is lower. The
prerequisites for an insurance company to underwrite
credit insurance include defi ned internal underwriting,
risk management and claims settlement guidelines
approved by the Board of Directors for writing this class
of business. The regulatory guidelines also specify
creation of premium, claims, Incurred But Not Reported
(IBNR) and Incurred But Not Enough Reported (IBNER)
reserves on actuarial basis. The guidelines also specify
that the insurer should have qualifi ed, experienced and
trained employees for dealing with trade credit insurance.
The Authority has also specifi ed additional reporting
requirements to monitor the performance of this line of
business. In this connection, the Authority has also
devised the reporting formats for capturing the credit
insurance business fi gures so as to have the information
at hand for further analysis of the business. These
reporting formats will help in taking further steps to ensure
that the trade credit insurance serves its purpose in a
more effective manner and its ambit is expanded to
ensure that credit insurance is accessible by a wider set
of buyers and sellers in the market.
Reinsurance:
27. The Authority framed the General Insurance-
Reinsurance Regulations, 2000 and Life Insurance-
Reinsurance Regulations, 2000 under powers granted to
it under Section 114A of the Insurance Act, 1938 and
Sections 14 and 26 of the IRDA Act, 1999 on matters
pertaining to reinsurance. In view of the emerging market
practices and trends, the Authority decided to review the
regulations. Accordingly, a Committee was constituted in
February 2011 under the Chairmanship of Shri Yogesh
Lohia to formulate / amend the said regulations. The
Committee was also mandated to make recommendations
in the light of the proposed amendments to the Insurance
Act, 1938. The proposed amendments to the regulations
include incorporating additional defi nitions / modifying
existing defi nitions, retentions being linked to quality of
risk, expanding the scope of reinsurance programs to
include Alternative Risk transfer (ART) techniques, pools
etc., prescribing additional disclosures, prescribing
5