The independent review conducted by the IRDA through various agencies revealed t

hat the current framework of the Pool is severely affecting the financial viabil
ity of the non-life insurance segment due to its alarming capital depletion.
The IRDA, after having examined the current framework of the Pool and its financ
ial management, opined that the pool in its existing form was eroding the intere
sts of the policyholders and was also causing financial distress to the non-life
insurance companies.
Accordingly, the IRDA issued an Order (No. IRDA/NL/ORD/MPL/277/12/2011 dated 23r
d December, 2011) creating a Declined Risk Pool for Liability Only commercial ve
hicle third party insurance with effect from 1st April, 2012.
The purpose of creating the Indian Motor Third Party Declined Risk Insurance Poo
l for Commercial vehicles (Act only Insurance) is to ensure (i) equitable and fa
ir sharing by all insurers; (ii) no supply side constraints; (iii) simplicity in
administration; and (iv) to bringing about efficiency in claims management.
Applicability:
The declined risk pool shall apply to commercial vehicles for standalone third p
arty liability insurance. No comprehensive motor insurance policy or part thereo
f shall be ceded to the pool. GIC Re shall act as the pool administrator of the
Declined Risk Pool. At no instance shall the insurer refuse to write the risk. A
ny refusal shall be seen as a violation of the Insurance Act, 1938 and shall inv
ite penalty as per of the Act.
Parameters for ceding the proposals to the declined risk pool:
Each company will have its own underwriting manual laying down the underwriting
parameters for accepting or ceding risk to the pool, which shall be filed with t
he IRDA. Any business which does not fall within the underwriting parameters of
the insurer shall be ceded to the pool. The ceding insurer shall retain 20 per c
ent of the individual risk to his net account (after obligatory cessions) and ce
de the balance to the declined pool.
The underwriting parameters based on which the company shall accept or cede the
risk to the pool shall be limited to:
age of the vehicle;
geographical parameters based on the registration of the vehicle;
type of vehicle based on the tonnage for goods carrying vehicles and passenger s
eating capacity for passenger carrying vehicles; and
such other parameters which the IRDA may decide from time to time.
Every company shall get the cessions to the pool audited by its statutory audito
r who will certify compliance to the underwriting guidelines filed with the IRDA
. The cessions to the pool shall also be audited by the pool auditors.
Manner of calculating the obligations:
Every insurer shall underwrite (excluding reinsurance) a minimum percentage of s
tandalone commercial vehicle motor third party insurance which shall be in propo
rtion to the sum of fifty per cent of the company's percentage share in total gr
oss premium and fifty per cent of the total motor premium of the industry in the
current year.
The declined pool shall be extinguished at the end of every underwriting year on
a clean cut basis, by transferring the risks at par to the members who have not
fulfilled their mandatory obligations. Such transfer shall be in proportion of
the shortfall of each member company.
Appointment of Grievance Redressal Officer:

Every non-life insurer shall appoint a grievance redressal officer to look into
the grievances of the policyholder/ prospect/ customer on the non-availability o
f motor third party insurance and shall submit a report on monthly basis to the
pool administrator with a copy of the same to the IRDA outlining the steps taken
by the company to ensure compliance with the regulations.
Methodology of Transfer of Risks:
The IRDA under Para 13(e) of its Order No. IRDA/NL/ORD/MPL/277/12/2011 dated 23r
d December, 2011 had constituted a Committee headed by Chairman of General Insur
ance Council. The other members include representatives from GIC, two public sec
tor non-life insurers and 2 private sector non-life insurers to work out the met
hodology for transfer of risks amongst non-life insurers.
The IRDA, after taking into consideration the report submitted by the Committee
on suggesting methodology for transfer of risks of Indian Motor Third Party Decl
ined Risk Pool, issued the following Order:
The transfer of risks between companies shall be on portfolio basis to members i
n deficit of obligations in proportion to their share of the pool with servicing
of each risk by the policy issuing company.
The pool liability for the underwriting year will be extinguished on a clean cut
basis at the end of every year with net cash payments being exchanged between t
he ceding and receiving companies on the basis of Ultimate Loss Ratio (ULR) esti
mated by the Pool Actuary.
The ceding company shall retain 20 per cent of the premium to its account, cede
as per the obligatory cessions in force to GIC (currently 10 per cent of the pre
mium) and cede the balance (currently working to 70 per cent of the premium) to
the declined risk pool.
The estimates of ULR for the business written by the insurer for the declined po
ol shall be as per above bullet point 2. The estimates of ULR for the business w
ritten to its own account fully may be as per their Appointed Actuary's estimate
.
The pool actuary shall estimate the ULR for the declined risks based on the data
that exists for the past five years and the insurers shall make provisions as p
er the latest year ULR, until the underwriting year's ULR is estimated. These es
timates shall be provided by 31st March, 2012.
The estimation of ULR for the declined pool risks shall be completed by the pool
actuary by following May of each underwriting year starting from 31st May, 2013
.
The ULR may be determined by the pool's appointed actuary and approved by the IR
DA based on a peer review, if required.
The declined risk pool shall make quarterly provisional cash settlements amongst
its participants.
Such quarterly settlements shall be on a year to date basis and to be finally ad
justed based on the year-end ULR as approved by the IRDA.
The quarterly settlements shall be done in 45 days from the end of the quarter a
nd the final settlements shall be done 45 days from the date on which the ULR is
approved by the IRDA.

The non-life insurers participating in the declined risk pool shall take up an a
dvertisement campaign on the declined risk pool with the message focused in Engl
ish, Hindi and other Indian languages intensively. The message should be simple
and shall be in the form of cut & keep.
GIC Re shall also participate in the declined risk pool as a member and shall al
so follow the clean cut methodology of the declined risk pool.