Insured, yet unassured

The lure of high profits has institutionalised a system in which consumers remain forever at the mercy of insurance companies
Sadiq Naqvi Delhi

India's insurance regulator is all set to dent the pockets of vehicle owners. The Insurance Regulatory and Development Authority (IRDA) has proposed to raise the premium for third-party insurance by 10 per cent for two-wheelers and cars and by 80 per cent for trucks. For a sub-1000cc vehicle, the increase will be from Rs 670 to Rs 740; for cars up to 1500cc, from Rs 800 to Rs 880; and for trucks weighing up to 7500kg, from Rs 5,580 to Rs 10,040.

Experts believe this decision might precipitate a nationwide strike by transporters, crippling the supply of food and other essential commodities. "This will send the spiralling food inflation further up," says SK Sethi, Vice President, Insurance Brokers Association of India (IBAI). The last time IRDA had hiked the rates, truckers all over the country went on strike, the transport system collapsed, and the insurance regulator was forced to partially roll back the hike. 

Others too are equally aghast. "Nowhere else in the world do people pay so much for insurance. The hike is arbitrary and indefensible," says Bejon Misra, a renowned consumer rights defender. 
But, according to G Shrinivasan, Chairman, United India Assurance, "Low rates of premium are a cause for worry." No wonder, private insurance companies have given a thumbs-up to the proposal that seeks to address the Rs 2,000 crore deficit faced by third-party motor insurance providers. The companies argue that they have to recover this deficit by raising premiums of other policy holders. Notably, third-party motor insurance - mandatory for all vehicle owners - is the only policy for which IRDA fixes the rates.

Third-party insurance of a vehicle entails the insurance company to pay compensation for death, disability or damage to property caused to a 'third party' (i.e., not the insured vehicle owner) in case the vehicle meets an accident. The compensation amount is decided by the Motor Accidents Claim Tribunal (MACT) and is unlimited, whereas the premium earned by insurance companies is fixed. Interestingly, IRDA has also proposed an amendment in the Motor Vehicles Act 1988 (MVA), to fix a limitation period for filing claims.  

However, in this debate on rising premiums, the real purpose of insurance seems to be lost. For the kith and kin of the victims of road accidents, seeking compensation from insurance companies continues to be a long-drawn battle. From MACT to the courts, insurance claimants have to face a traumatic experience. "In most cases of third-party insurance, insurance companies ensure that they win the case and thus pay no claims at all," says Misra. 

He adds that these companies pay lakhs to their counsels instead of paying the claimants, who are sometimes forced to accept a lesser sum for an out-of-court settlement. "It makes no sense to keep going to courts endlessly and not get anything at all," rues Mohammad Danish, a resident of Delhi.

Also, in case of accidental damage or theft of the insured vehicle, although the surveyors do reach the spot on time, the claims are never respected in full. Deducting 20-30 per cent from the total repairing expenses is a regular practice among insurance companies. At times, the claimants are asked to pay for services mentioned as free in the contract. "In my agreement it was clearly mentioned that the company would also pay for the towing expenses of the car in case of an accident. But when I approached them, they just bluntly refused," says Misra. His calls to the company's complaint centre went unheeded and he was doled out idiotic explanations by the customer service agents. Moreover, he was asked to partially contribute towards the repairing expenses. 

"The complaint mechanism is so flawed, it's frustrating," he says. It was only after he approached the general manager that his complaint was looked into. "I have a background of working for consumer rights, so they had to listen to me. But what about ordinary people?" he asks.

For cases where damage to the vehicle is beyond repair, the insurers have devised a new plan - 'cash loss settlement' - where they allegedly fix the value of the wreck arbitrarily and pay the difference to the claimant. This is in violation of Section 55 of MVA, but IRDA has chosen to ignore it.

The courts, too, have rapped the companies for delays in settling victims' claims: "The companies, on getting information about an accident, immediately take steps to appoint surveyor for assessing the damage but the same enthusiasm is not shown in settling victims' claim... Atrociously, no similar pains are taken by these insurance companies to compensate the victims of the accidents in injury cases." (Delhi High Court, 2008)

Moreover, the toothless grievance redressal mechanism has made the insurance companies enjoy an almost free run. "There is so much duplication in the mechanism that people don't know where to go," says Sethi. People don't know of the existence of an insurance ombudsman. "The impetus should be on strengthening the hands of the ombudsman and people should be made aware of his existence," feels Anurag, insurance expert at consultancy giant PriceWaterhouse Coopers. 

However, experts differ. "Pendency of cases in courts is a major issue for both claimants and insurance providers. For the companies, a long-drawn procedure adds to the cost of managing claims, which can sometimes exceed the actual claim," argues Anurag.

Questions have also been raised on the practice of deducting a substantial amount in the name of 'imposed excess'. This is in violation of the All India Motor Tariff, which only mentions 'compulsory excess' and 'voluntary excess'. When a public interest litigation was filed in the Lucknow bench of the Allahabad High Court, IRDA acknowledged this violation, and said it had directed the insurers to refund the amount in five cases and hence the case should be rejected. But, although millions of consumers have paid upto Rs 40,000 in such cases, there has been no effort to educate the public through advertisements, and no circular asking the insurers to refund the amount.    

Indeed, the lure of high profits has institutionalised a system in which consumers, in spite of paying the full premium for insurance cover, are forever at the mercy of insurance companies. The companies have a free run as IRDA has in most cases been unable to penalise the defaulting ones. During 2009-10 it imposed penalties on two general insurance companies, one health insurance company and two life insurance companies for non-compliance with various regulations pertaining to Sections 32B and 32C of the Insurance Act, 1938. The total penalty amounted to a paltry Rs 50 lakh! 

"Such low penalties don't make sense as they do not deter companies from engaging in misdeeds," says a former top executive at Bajaj Allainz Life Insurance.

In its initial years, IRDA did penalise defaulting insurance companies, most of them government-run, as the private players had just entered the market. However, lately, the regulator seems to have withdrawn from this very important responsibility. "This has a lot to do with the ascendancy of private insurance companies," says an expert. 

"We are strengthening the grievance redressal mechanism. A software is being designed to ensure that grievances received by the companies also come to us," says Suresh Mathur, Joint Director, IRDA. 

Moreover, private players in the business are not interested in issuing third-party policies, which is seen as a loss-making exercise. Taking a cue from the private giants, public sector companies have also begun to shy away from this business. In 2008-09 only 3 crore of the more than 10 crore vehicles plying on India's roads were insured. All this is in gross violation of Section 146 of MVA. In fact, IRDA did not even pay heed to the circulars issued by the finance ministry in 2007 asking it to ensure that all vehicles on the roads are insured. 

"The sales departments of insurance companies are responsible for this mess," says an expert on conditions of anonymity. "The agents are paid high commissions and there is a complete lack of transparency and accountability in the whole sector. The impetus is on numbers and targets, not on the quality or aims of the product," says Misra. After all, as Anurag puts it, "The core aim of private insurance companies is to guarantee profits for their promoters."