Slow Reaction

By Ramesh Akkineni

from an article in Economic Times

The surprising part of the insurance companies action is that third-party liability insurance was always a loss-making portfolio. The amendment of the Motor Vehicle Act in 1988 provided for unlimited liability for the insurance company in an accident. Following this, there have been instances when courts have awarded damages amounting to as much as Rs. 16 crore as compensation for road accidents.

“In any other country, insurance companies would have lobbied against this amendment or would have at least raised rates in preparation for higher liability. But Indian insurance companies did not react for more than a decade,” says a retired industry official.

For state-owned insurance companies, the clamp down began only after the arrival of private sector insurance companies. Private companies have worsened the motor loss ratio for state-owned insurers by tying up directly with manufacturers and dealers, offering them attractive deals.

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