Road mishaps: Insurance cos pay out Rs 4,000 cr/yr

Mumbai: The high death toll on India's highways is bleeding its insurance firms. This is evident from the fact that public sector general insurance companies have consistently paid out a whopping Rs 4,000 crore every year since 2007 to settle compensation amounts awarded by the Motor Accidents Claims Tribunal (MACT).      It is estimated that the insurance firms had earned a measly Rs 15 lakh in premium from the policy holders on whose behalf it made the payouts. This is because the premium for third party insurance policies is extremely low. For a commercial vehicle, it is not more than Rs 1,500, for private cars it is only Rs 600.      In effect, the public sector insurance firms have dished out a mindboggling Rs 12,000 crore in compensation to road accident victims during the last three financial years. What's more, this is only the tip of the iceberg as companies settle only one lakh cases every year and more than 11 lakh claims are still pending before the MACT. The major portion of the general insurance market is with the public sector, with private firms which are recent entrants,now controlling 40% of the market. Interest on claims hurts insurance companies  Mumbai: Motor insurance firms have been hit hard by the spate of accident claims in recent years. "Road accident cases remain pending before MACT for nearly a decade before the final order comes. The insurance firms then have to pay the principal amount plus interest on it from the day the claim was filed. It is the interest that forms a major portion of the payout and that hurts the companies,'' said Mukesh Thakkar, a senior development officer with New India Assurance. MACT orders interest to be paid at the rate of 9% and it accumulates over the years.      Industry experts said that some of the insurance firms are getting so desperate that they have started hiring private surveyors to approach families of accident victims and convince them to settle cases out of court. "It's a terrible situation for the insurance firms as on one hand the compensation claims are bleeding them and on the other, 70% of vehicle owners don't even buy insurance policies to add to their coffers,''said Mahendra Durve, president of the All India Institute of Insurance Surveyors.      Nearly 40,000 people are killed in road accidents in India every year and one and a half lakh are injured. Most of these cases end up before the MACT which orders insurance firms to make payments under the solatium scheme, introduced by the central government in 1989 to deal with the modalities of payment of compensation to victims of hit-and-run cases.      "There has been a 20% rise in third party claims cases, but the motor insurance premium is not growing. In fact it has come down after the insurance sector has been de-tarrifed this year,'' said a senior insurance official.      A majority of the accidents occur on state highways and involve commercial vehicles. "In the MACT, cases go on for 8 to 10 years on an average with some even taking up to 14 years to be disposed of. Many victims are poor people who cannot afford the lawyers' fees but are forced pay a part of the compensation amount to the advocates who fought their case,'' an official said.      Industry experts say the government will have to take steps to ensure cases for compensation do not get bogged down in the judicial process for years. "Insurance firms simply cannot afford to pay thousands of crores in compensation every year,'' said Durve. "We would like to see a robust judicial infrastructure that disposes of claims quickly, so that the interest component comes down,'' said Thakkar.      The government says it is taking steps to reduce road accidents. It points out that road safety norms are now an integral part of design at the planning stage of all national highways and expressways. The ministry of road transport and highways also claims it is running publicity campaigns, introducing new road furniture and road signs and providing ambulances to state governments to bring down the death toll on the country's highways. MONEY MATTERS