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ANNUAL REPORT 2011-12
BOX ITEM 6
FORMATION OF INDIAN MOTOR THIRD PARTY DECLINED RISK INSURANCE POOL
The independent review conducted by the Authority through various agencies revealed that the current framework of the
Pool is severely affecting the fi nancial viability of the non-life insurance segment due to its alarming capital depletion. The
Authority, after having examined the current framework of the Pool and its fi nancial management, opined that the pool in
its existing form was eroding the interests of the policyholders and was also causing fi nancial distress to the non-life
insurance companies. Accordingly, the Authority issued an Order (No. IRDA/NL/ORD/MPL/277/12/2011 dated 23 rd
December, 2011) creating 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 to ensure (i) equitable and fair sharing by all insurers; (ii) no supply side constraints; (iii) simplicity
in administration; and (iv) to bringing about effi ciency in claims management.
Applicability:
The declined risk pool shall apply to commercial vehicles for standalone third party liability insurance. No comprehensive
motor insurance policy or part thereof shall be ceded to the pool. GIC Re shall act as the pool administrator of the Declined
Risk Pool. At no instance shall the insurer refuse to write the risk. Any refusal shall be seen as a violation of the Insurance
Act, 1938 and shall invite penalty as per of the Act.
Parameters for ceding the proposals to the declined risk pool:
Each company will have its own underwriting manual laying down the underwriting parameters for accepting or ceding
risk to the pool, which shall be fi led with the Authority. Any business which does not fall within the underwriting parameters
of the insurer shall be ceded to the pool. The ceding insurer shall retain 20 per cent of the individual risk to his net account
(after obligatory cessions) and cede the balance to the declined pool.
The underwriting parameters based on which the company shall accept or cede the risk to the pool shall be limited to:
(i) age of the vehicle; (ii) geographical parameters based on the registration of the vehicle; (iii) type of vehicle based on
the tonnage for goods carrying vehicles and passenger seating capacity for passenger carrying vehicles; and (iv) such
other parameters which the Authority may decide from time to time. Every company shall get the cessions to the pool
audited by its statutory auditor who will certify compliance to the underwriting guidelines fi led with the Authority. The
cessions to the pool shall also be audited by the pool auditors.
Manner of calculating the obligations:
Every insurer shall underwrite (excluding reinsurance) a minimum percentage of standalone commercial vehicle motor
third party insurance which shall be in proportion to the sum of fi fty per cent of the company’s percentage share in total
gross premium and fi fty per cent of the total motor premium of the industry in the current year. The declined pool shall be
extinguished at the end of every underwriting year on a clean cut basis, by transferring the risks at par to the members
who have not fulfi lled their mandatory obligations. Such transfer shall be in proportion of the shortfall of each member
company.
Appointment of Grievance Redressal Officer:
Every non-life insurer shall appoint a grievance redressal offi cer to look into the grievances of the policyholder/ prospect/
customer on the non-availability of motor third party insurance and shall submit a report on monthly basis to the pool
administrator with a copy of the same to the Authority outlining the steps taken by the company to ensure compliance with
the regulations.
Methodology of Transfer of Risks:
The Authority under Para 13(e) of its Order No. IRDA/NL/ORD/MPL/277/12/2011 dated 23 rd December, 2011 had constituted
a Committee headed by Chairman of General Insurance Council. The other members include representatives from GIC,
two public sector non-life insurers and 2 private sector non-life insurers to work out the methodology for transfer of risks
amongst non-life insurers. The Authority, after taking into consideration the report submitted by the Committee on suggesting
methodology for transfer of risks of Indian Motor Third Party Declined Risk Pool, issued the following Order:
The transfer of risks between companies shall be on portfolio basis to members in defi cit of obligations in proportion
to their share of the pool with servicing of each risk by the policy issuing company.
The pool liability for the underwriting year will be extinguished on a clean cut basis at the end of every year with net
cash payments being exchanged between the ceding and receiving companies on the basis of Ultimate Loss Ratio
(ULR) estimated by the Pool Actuary.
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