From April 1, 2015, two-wheelers and four wheelers apart from other commercial vehicles may see atleast a 20-25% rise in their motor third party (TP) premiums.
Both public general insurers and private general insurers have sought a hike in TP premiums for 2015-16, to make up for the losses in the segment.
Motor TP is a regulated segment where there is an annual increase in premiums for the vehicles. While motor TP is compulsory and all vehicles plying on Indian roads have to take a third party insurance cover, motor own damage cover is optional.
While the 'own-damage' motor segment covers losses to self, motor TP covers the liability of a vehicle owner to a third party in case of an accident.
“The rise in premium in the past few years has not been commensurate with the losses that have been reported in this segment. Even the combined ratio are far above 100%,” said the head of underwriting at a private general insurance company.
Combined ratio refers to the ratio of losses and expenses compared to the income (premiums) in a particular segment. Anything above 100% refers to the fact that the insurer is not making underwriting profits in that segment.
For 2015-16, general insurers have sought atleast 40% increase in motor TP premiums. Senior industry executives said that segments like two-wheelers and auto-rickshaws where there have not been very large claims could be incentivised with a lower rate of premium hike while it could be higher for commercial vehicles.
The insurance regulator brings out the draft proposal for increase the premiums for motor TP segment. Later, they take into consideration the insurer's concerns and also that of consumer forums, while arriving at a price hike formula based on the claims in the category, be it two-wheelers, private cars, taxis, auto-rickshaws and trucks among others.
As per the Motor Vehicles Act, there is no limit on the liability of vehicle owners. Non-life insurers say due to this, an increase in claim awards by courts is seen every year.
In 2014-15, the Insurance Regulatory Authority of India (IRDAI) had raised premiums between 9-20%, across vehicle categories.
The commercial vehicle segment has been a concern in the motor segment, owing to which insurers had sought steep rises (at least 55-65%) in overall TP premiums. They feel the rise for 2014-15 hasn't been commensurate with the claim size.
Currently, combined ratios in the motor insurance segment stand at 140-150%, owing to losses in the TP motor segment. According to estimates, payouts by insurance companies to individuals for motor TP-related accidents have risen 15-20%.
The general insurance segment is also considering linking motor pricing to individual behaviour, as well as the location of the vehicle. For instance, if a vehicle is chauffeur-driven and runs within a small city, or if it is driven by a woman, the premiums might be lower. For vehicles driven in hilly areas or difficult terrain, the premium might be higher.
For the April to December 2014 period, non-life insurers collected Rs 27132.65 crore of motor premiums, of which Rs 14251.60 came from the motor own damage segment while Rs 12881.58 crore came from the motor third party insurance segment.