Delay in third-party premium hike hurting balance sheets: Insurers

No increase in motor third party premiums for the second consecutive year has left general insurers staring at more stress in their balance sheets, which have already been under pressure owing to mounting Covid claims. The insurance regulator had proposed a hike in third-party premium for FY21 but it was put on hold to provide relief to policyholders during the pandemic. 

In FY20, insurers got a modest hike, but even that was delayed by three months. It has been two years since then, and the general insurance industry is yet to get a motor third party hike from the regulator. Before Covid, premiums were hiked annually for 7-8 years in a row. 

Experts said on an average, there is 15 per cent inflation in motor third party claims as these are linked to the income and also due to the generous interpretation by courts in their awards. “So, if the industry does not get a hike for two consecutive years, it will, most definitely, impact their balance sheets, and solvency margins. General insurers’ balance sheet is already stressed because of the unprecedented Covid-related health claims since the onset of the pandemic, and this is just adding to their losses”, said the CEO of private sector general insurer. 

Anup Rau, MD and CEO, Future Generali India Insurance, said the hike in motor third-party premiums should not be delayed for a long time “because eventually, we may reach a situation where premiums may have to be radically overcorrected, which is not desirable for anyone in the ecosystem”. “There should be a steady hike in the TP premiums, else it may prove detrimental for the industry as the motor segment has seen higher loss ratios in the past,” Rau said. 

The motor insurance segment saw a contraction in FY21 due to lower new vehicle sales because of the pandemic. In FY21, the general insurance industry earned motor premiums worth Rs 67,790 crore, down 1.7 per cent. In the first five months of FY22, the motor insurance segment has grown by 4.8 per cent compared to the year-ago period.

Experts said the sale of new vehicles has been low, leading to a drop in premiums. Insurers are heavily dependent on the sale of new vehicles for motor insurance premiums because as the vehicle gets old, the amount of premium paid by consumers gets reduced due to the depreciation effect.