After proposing hike of nearly 40-50% for the two consecutive years, IRDAI does not propose a steep hike in third party motor insurance premium rates this year. In fact, the insurance regulator has suggested a flat or marginal hike in third party motor insurance premium.
Every year, the insurance regulator revises premium rates taking into account the number of claims made and loss ratios for insurers. Third party motor insurance is mandatory in India. However, General Insurance Council data shows that only 40% of vehicles plying in Indian roads are insured.
The new third party premium for private cars with engine capacity not exceeding 1000cc is proposed to be reduced from Rs.2,055 to Rs.1,850. However, very few car models such as Alto 800, WagonR and Hyundai EON come under this segment.
However, for high-end cars, with engine capacity between 1000-1500cc like Swift, Swift Dzire and i10 and cars with engine capacity above 1500cc (i20, Honda City and Ecosports), IRDAI has proposed to keep the premium rates unchanged for FY 2018-19. Currently, cars with engine capacity between 1000-1500 cc charge Rs.2863 and cars with engine capacity exceeding 1500cc charge Rs.7890.
Similarly, in the two-wheeler category, the revised premium for engine capacity between 75-150cc will remain flat at Rs.720. For premium bike models, with engine capacity between 150-350cc IRDAI has proposed to hike rates by 11% from Rs.887 to Rs.985. The hike rate for super bikes with engine capacity exceeding 350cc would be 128%; as a result, the premium would increase from the present Rs. 1,019 to Rs.2,323.
There was some respite for insurers in the motor insurance category last year. An increase in third party motor insurance premium tariff helped non-life insurers limit their loss ratio in the motor insurance segment to some extent. The incurred claims ratio of the motor segment was at 88.17 % in 2016-17. Experts believe that comfortable incurred claim ratio is the primary reason for a marginal hike in third party premiums.
Incurred claim ratio is claims received for the premium paid towards insurance policies in a year; hence, a low incurred ratio indicates healthy growth prospects and higher profitability in non-life business. Typically, a ratio of less than 100 indicates that insurers are making money from a segment.