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

Term Insurance at Best terms

LIC may be the biggest name in insurance, but its policies are pricey. ETIG suggests that private players offer pocket-friendly polices when it comes to pure term insurance plans

PALL AVI M U L AY ET INTELLIGENCE GROU P 

INVESTOR'S Guide has always advised to readers to buy at least one insurance policy. Life is full of uncertainties and risks. So an insurance policy is a must. 
    The primary objective of an insurance policy is to secure the needs of one's family in an unfortunate event of death of the policyholder. So the amount received has to be big enough to enable the dependents to maintain their lifestyle. 
WHY TERM PLANS? 
The rule of thumb in financial planning says that life cover should be worth 6-7 times of your current annual income.If your current annual income is 5 lakh then the insurance policy should provide a cover of Rs 30 lakh. This calls for a pure-risk policy, which offers an extensive cover at minimal cost. Hybridinvestment products, with moiney back option cost several times more for the same amount of risk cover. A term plan is the best option when the purpose is life cover. 
WHICH TERM PLAN? 
The next question is which policy. The first name that comes to mind is LIC. The staterun Life Insurance Corporation of India is the oldest and largest insurer in the country and all its liabilities carry an implicit government backing. But then, there are equally credible players in the private sector. There's no harm in shopping around for the best plan available in the market. 
    While selecting a term policy, one should consider the cost (the amount of premium), the maximum term offered, the additional benefit in terms of different riders and the additional cost to avail these riders. 
    ETIG's analysis of policies offered by LIC and major private players suggests the policies offered by LIC are costlier. LIC loses against its private counterparts on account of high premium, no discount on premium paid and lack of riders. LIC's Anmol Jeevan and Amulya Jeevan are just plain vanilla traditional term insurance policies. 
    As it is commonly known, term plans simply cover the life of the policyholder and do not provide any maturity or survival benefits. The amount of life cover (sum assured) is payable only to the nominee in case of unfortunate demise of the insured during the policy term. Where the insurer survives the policy term, he/she is not entitled to any benefits from the insurance company. The premiums paid throughout the policy term may thus be treated as a cost to cover one's life. So it is better to minimise the cost. 
    LIC charges an annual premium of Rs 9,500 for Rs 25 lakh policy from a 30-year-old person while private players like SBI life, HDFC Standard Life etc, offer similar cover for an annual premium in the range of Rs 6,200-7,500. (See the table.) 
    Private players also offer rebate on premium for female policyholders or for high sum assured. LIC do not discriminate on this count. It has a single premium for all of age groups. 
    The pure term plan in its traditional form offers the benefits only in cases of natural death; the policy is considered null and void if the death is accidental or due to some critical illness, etc. This is one of the major reasons for it being unpopular amongst people. 
    Private insurers address this limitation by offering riders, or additional benefit, along with the policy for an additional fee. 
    The common riders available are accidental death benefit, critical illness benefit, accidental disability/dismemberment benefit, hospital cash benefit, etc. LIC in contrast only offers traditional products without any rider. 
    Despite these better offers from private insurance companies, there is higher demand for LIC's products. It is largely because hassle-free settlement of claims after the unfortunate event of death of the insured, which is very important. It is a fact that LIC has the highest claim ratio over 95% (that is 95 out of 100 claims are settled successfully) for the year ended March 08, which is very much in line with its historical record. Nevertheless, major private players have the claim ratio higher than the industry average, which is noteworthy. 
CONCLUSION 
The moral of the story is that one needs to do a cost benefit analysis before buying life insurance policies and not to go with the tag as the 'market leader' or the 'oldest player'. 
    pallavi.mulay@timesgroup.com