Third party motor insurance to get costlier

IRDAI proposes to hike third party motor insurance premium rates by up to 50%. Last year, IRDAI had hiked third party motor insurance premium by up to 40%.

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 60% of vehicles plying in Indian roads are not insured.

The new third party premium for private cars with engine capacity not exceeding 1000cc is the same at Rs. 2,055. Very few car models come under this segment. However, for high-end cars, with engine capacity between 1000-1500cc the premium has increased from Rs. 2,237 to Rs. 3,355. Also, for cars with engine capacity above 1500cc, the premium has gone up from Rs. 6,164 to Rs. 9,246. The premium rates for both the categories has substantially increased by 50%.

Similarly, in the two-wheeler category, the revised premium for engine capacity between 75-150cc will go up by 16% from Rs.554 to Rs.693. For premium bike models, with engine capacity between 150-350cc IRDAI proposed to hike rates by 41% from Rs.693 to Rs.978. The hike rate for super bikes with engine capacity exceeding 350cc stood at 50%; as a result, the premium would increase from the present Rs.796 to Rs. 1,194.

Citing the rationale behind this step, IRDAI has said, “The rates have been arrived on actuarial basis after factoring in the necessary assumptions. These rates have been compared with the rates that were published during the last few years. Based on the IRDAI’s past experience in determining the pricing, the data sets used and also looking into those segments where the actuarial pricing is quite high in comparison to previous year’s pricing due to apparently volatile loss ratios, the IRDAI has smoothened the rates up suitably.”

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 81% in FY 2015-16 as against 77% in FY 2014-15. 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.

Proposed third party premium rates

Source: IRDAI

Stakeholders can send their comments on this draft circular to IRDAI before March 18.