The Tariff Advisory Committee's (TAC) decision to hike third party motor tariff premia is almost certain to provoke angry reactions from truck-owners. The fact of the matter, however, is that raising third-party premia is one way of stopping the continuous losses being piled up by insurance companies on account of this business.It would be prudent here to point out that GIC's underwriting losses in the auto insurance business, have for long been cross subsidised, by its profitable fire insurance business and its investment revenues. Consider that if the insurance business was not state-run, premias would anyway have gone up long ago. Given this background, TAC's action therefore replicates what the markets would have decreed had they been left free. Furthermore one has to bear in mind that the insurance premia in India (apart from life insurance premia) are amongst the lowest.
However what is clear, is the fact that TAC's timing leaves much to be desired, what with the elections just round the corner.The issue could snowball into a major political debate. But more importantly this is the crucial fourth quarter of the financial year when business works overtime to produce and despatch goods, trying to meet targets set for the year. A possible strike by truck owners now would leave corporate India gasping for breath. It will be remembered that the truckers caused extensive damage last year, while protesting against the very same issue. Interestingly while safeguarding GIC's interests, this contentious issue helps one wonder what if the insurance sector was privatised? While the answer to this question would certainly mean improved products and operational efficiencies, higher premia decreed by market forces, at least in areas like motor insurance appears to be a distinct probability.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
