IRDAI hikes motor third party premium rates

IRDAI has hiked third party motor insurance premium rates by up to 40%. Last year, IRDAI had hiked third party motor insurance premium by up to 20%. Third-party motor insurance is mandatory in India.

The new third party premium for private cars with engine capacity not exceeding 1000cc has gone up from Rs. 1,468 in FY 2015-16 to Rs. 2,055 in FY 2016-17, a hike of 40%. Similarly, for engine capacity between 1000-1500cc the premium has increased from Rs. 1,598 to Rs. 2,237 and for engine capacity above 1500cc, the premium has gone up from Rs. 4,931 to Rs. 6,164.

In the two wheeler category, the revised premium for engine capacity of 75-150cc has increased from Rs. 538 to Rs. 619. Similarly, for engine capacity between 150-350cc, the premium has gone up from Rs. 554 to Rs. 693. However, the third party premium rate has reduced by 10% i.e. from Rs. 884 to Rs. 796 in two wheelers having engine capacity of over 350cc. The sales volume of such two wheelers are very low.

Citing the rationale behind this steep hike, IRDAI has said, “It is observed that the cost inflation index (CII) has increased by 5.57% over the previous year, i.e. from 1024 in FY 2014-15 to 1081 in FY 2015-16. Accordingly, the Authority issued an Exposure Draft on 04 March 2016 on revision of premium rates for motor third party insurance covers for the FY 2016-17 inviting comments on the proposed rates from all stakeholders concerned. The exposure draft published data provided by Insurance Information Bureau ((IB) of India which includes number of policies, number of claims paid and amount of claims outstanding as on 31st March 2015 for each underwriting year and for each class of vehicle. The methodology used in estimating premium rates and also the various factors considered in moderating the actual derived premium rates were also explained briefly in exposure draft.”

Though third-party motor insurance policy is mandatory in India, only a few vehicles are insured. Recently, at a launch of e-Vahan Bima, an electronic motor insurance policy, at Hyderabad, Telangana government revealed that out of 84 lakh vehicle in the state only 50% vehicles are insured.

Non-life insurance companies, particularly, private insurers are reluctant to issue third party motor insurance. They tend to push comprehensive own damage cover to policyholders. Motor third party insurance cover is a loss making business for non-life insurers due to unsustainable premium tariff.

However, in the circular, the insurance regulator has asked insurers to ensure that motor third party insurance is made available at their underwriting offices and through all available channels of distribution.

IRDAI data shows that there was some respite for insurers in the motor insurance category. An increase in third party motor insurance premium tariff helped non-life insurers limit their loss ratio in motor insurance segment to some extent last fiscal. The motor insurance segment posted incurred claim ratio of 77% in FY 2014-15 as against 80% in FY 2013-14. Incurred claim ratio is net incurred claims to net premium. Simply put, it 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.

New third party premium rates

Source: IRDAI