No insurance, no fuel

A suggestion has been put forward by general insurers to the IRDAI,that there should be a mandate from the government that fuel will not be dispensed to vehicles that are uninsured. Some call it hare-brained and some say insurers are looking at an easy option to enhance their top-lines easily and claim to have enhanced insurance penetration. How will fuel pump operators figure out if a vehicle is insured or uninsured, worry some, while others feel that petrol pumps may become insurance intermediaries with insurers flocking to them with open purse strings.

The idea cannot be dismissed perfunctorily. It is not about individual companies' toplines or insurance penetration but beyond that -- It is about protecting the innocent victims/their families of road accidents who may be hit by uninsured vehicles and be deprived of compensation. It could well happen to you and me.

This is where the government has to step in, to ensure that no vehicle plies on the road without a valid Third-Party insurance. While this regulation is already there, it is all about effective implementation of the same. One of the suggestions for implementation is ' No insurance, no fuel'. There can be other options too such as collection of insurance premium from the Fastag account when the system identifies a vehicle as uninsured or imposing a cess on the price of petrol/diesel which will automatically go towards third-party insurance of the vehicles. Ha, but this presents a couple of challenges. No one would buy TP insurance through an intermediary is one, as they will automatically get a TP cover through the cess they pay on fuel. Second, an equitable way has to be found to distribute the premium collected across different insurers. If the ' No insurance, no fuel' practice is adopted, insurers will have to provide a sticker on each vehicle insured and its validity period. Uninsured vehicles can be insured on the spot with additional amount collected towards insurance along with the fuel price and technology-driven certificates/stickers issued on the spot.

Will insurers be willing to take up the mandatory TP insurance premiums, as the Court awards tend to be very high giving rise to unfavorable loss ratios, doubt some people. Motor TP insurance is a preferred or even cherished class of business for insurers. If one looks at the total Motor premium for the year till January 2023 ( GI Council report), 61% comes from TP and only 39% from OD. Every insurer barring 3, have higher TP premiums than OD premiums. That itself tells the story. Huge reserves created for outstanding TP claims, take years to fructify and in the interim, the reserve earns investment income, while the claim reserve goes to suppress profits for the year, leading to lower income-tax outgo. No wonder, insurers are willing to pamper intermediaries who act as TP premium consolidators. Their earnings can be mind-boggling. As long as the business keeps growing faster than the long-tail of TP claims catching up, insurers make merry in the short term.

The question then arises -- Why the clamor for increase in TP premiums every few premiums, citing high loss ratios? Certainly, a red herring. At least in case of private cars, in cities, where the driving speed will make a snail proud, there is absolutely no justification for a premium increase. Understand, now TP premiums will have to be decided by the Ministry of Road Transport and by the IRDAI. Hopefully the issue will be looked at holistically.

Finally, in India, if insurance penetration is to be enhanced rapidly, be it in Motor, Health or Personal accident, the active intervention of the government is a MUST. Insurers and intermediaries have limitations in terms of reach, cost and intent to cater to the last mile. #fuel #insurance #thirdpartyrisk #mandatory #irdai #petrolpump #TP PREMIUM #profitable