IRDAI to allow a hike in third party motor insurance premiums

IRDAI is set to increase third party motor insurance premium. The insurance regulator has proposed hiking the premium rates by up to 5% in most segments.

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.

The new third party premium for high-end private cars with engine capacity for over 1500cc remains unchanged at Rs. 7,890.

However, for cars, with engine capacity between 1000-1500cc the premium has increased from Rs. 3,221 to Rs. 3,383. Also, for cars with engine capacity upto 1000cc, the premium has gone up from Rs. 2,072 to Rs. 2,182. The premium rates for both the categories has increased by over 5%.

Similarly, in the two-wheeler category, the revised premium for engine capacity between 75-150cc may go up by over 2% from Rs.752 to Rs.769. For premium bike models, with engine capacity between 150-350cc, IRDAI proposes to hike rates by 9% from Rs.1,193 to Rs.1,301.

The hike rate for super bikes with engine capacity exceeding 350cc stood at nearly 11%; as a result, the premium would increase from the present Rs.2,323 to Rs. 2,571.

Citing the rationale behind this step, IRDAI has said, “By considering the projected burning cost and loading it with appropriate expenses, premium rates for the FY 2020-21 have been derived. The actuarial rates have been arrived at after factoring in the necessary assumptions and after smoothening, wherever necessary.”

IRDAI has also proposed a discount of 15% on electric private cars, electric two wheelers, electric goods carrying commercial vehicles and electric passenger carrying vehicles, which will incentivize usage of environmental friendly vehicles. A discount of 7.5% on premium rates for Hybrid Electric Vehicles is also proposed.

The motor insurance segment posted incurred claim ratio of 90.60% in FY 2018-19 as against 83.45% in FY 2017-18. 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.

Source: IRDAI