Call for limited liability in third party insurance

By Our Special Correspondent

CHENNAI, JULY 17. The large officer cadre in the public sector general insurance industry has called for immediate introduction of the limited liability concept in respect of third party motor insurance and other steps to ensure that public sector companies are able to play their due role in the new competitive scenario.

In representations made to the Union Finance Ministry and other authorities, the National Confederation of General Insurance Officers' Associations has also expressed concern over the proposal for mandatory introduction of Third Party Administrators (TPAs) in health insurance. The confederation has in general expressed its dissatisfaction over the lack of a clear direction or vision in respect of the future of the public sector in general insurance, unlike in the case of the Life Insurance Corporation (LIC), to meet competition from private players.

According to Mr. T. S. Par Oli, Secretary-General of the Confederation, the underwriting losses of the general insurance industry, which reached Rs. 995 crores in 1999-2000, were substantially due to the huge claims arising from third party motor insurance. The actual losses would have been higher but for cross-subsidisation from the fire insurance and some other profitable segments.

However, with the Insurance Regulatory and Development Authority (IRDA) prohibiting cross-subsidisation, the introduction of limited liability in third party insurance had become ``absolutely essential'', he said. Though the confederation was happy over the reintroduction of depreciation in ``motor own damage'', this did not deal with the main problem of third party losses, Mr. Par Oli pointed out.

Talking to The Hindu, Mr. Par Oli said the confederation had suggested a structured compensation system for motor accident victims, similar to the one provided under the Workmen's Compensation Act. This would not only be rational and avoid exorbitant claims but also enable quick settlement of claims and free claimants from spending substantial time and resources over legal services.

``If an airline passenger dies in a crash, the maximum compensation payable is Rs. 4 lakhs. Similarly, the highest compensation for railway accident victims is Rs. 4 lakhs. In this context, there is no justification for unlimited liability in motor third party claims'', he said. He felt that private insurance companies showed a tendency to avoid issuing third party motor policies and hence the whole burden fell on public sector companies.

Health insurance

Regarding the proposal to introduce TPAs in health insurance, he said outsourcing of claims management would only be in the interest of new private sector and foreign insurance companies which could avoid capital and other outlays on the settlement system. But the public sector insurance companies, which had a large staff base and a settlement mechanism, would be faced with either higher operating costs or redundancy of staff if they were forced to outsource the settlement service.Mr. Par Oli said outsourcing of medical claims settlement, which was common abroad, was not working smoothly, since the hospital and medical fraternity tended to frown upon outsiders questioning the decisions of their cadre. It might lead to complications without genuine relief for the insured.

The confederation, he said, had urged the government to ensure the morale of officers and staff of the public sector insurance companies when the private sector was attracting talent. In this context, it opposed the suspension of leave travel facilities for all employees in the public sector companies for two years with effect from May and the managements' failure to come out with a revamped promotion policy and employee benefit structure.

Send this article to Friends by E-Mail

Section  : Business
Previous : SAIL retires Rs. 2,600 cr. high-cost debt
Next     : Govt. to chalk out strategy to dilute stake in
           Nalco