Hike in third-party motor insurance premiums not enough, say experts

With auto industry struggling, non-life insurance firms seeing muted growth

The hike in third-party motor premiums proposed by the Insurance Regulatory and Development Authority of India (Irdai) is a positive for the non-life insurers. However, some in the industry feel it is not adequate to cover the claim losses.

Irdai has released an exposure draft on revision of third-party (TP) motor insurance premiums for FY21. On an average, it has proposed a hike of 2 per cent in renewal premium for private cars and 8 per cent for two-wheelers. But, for long-term premiums, the average hike proposed is 15 per cent for private cars and 17 per cent for two-wheelers. 

Sanjay Datta, chief of underwriting and claims at ICICI Lombard, said: “The hike is always good for the insurers because we are losing money. The long-term hike on premiums is positive because earlier we did not get hikes in premium on long-term premiums. And, we have got nominal hike in the usual premiums. So, this will help us in bringing down our losses.”

“Claims data for eight years has been considered and the final rates have been arrived at by using actuarial methods to calculate claims costs and with appropriate loading for expenses. The regulator has taken into account the interests of both insurance companies as well as the insuring public, and we are of the opinion that the proposed new rates represent a fair deal for both parties,” said Subramanyam Brahmajosyula, head of underwriting & reinsurance, SBI General Insurance. 

On the other hand, some feel this will adversely impact the industry because the hike in premiums is the lowest in a decade. This will put pressure on the companies as the costs are getting higher and so are the claims increasing while the industry growth is slowing. 

“The growth in the industry is slackening but not the cost,” said the chief executive officer of a general insurance company. 

According to ICICI Securities, “The automobile industry could raise objections considering the modest demand environment and overall healthy loss ratios for private insurers in the past four quarters. On a standalone basis, the hike in renewal premiums is lower than cost inflation as well as the corresponding historical CAGR. Hikes in long-term third-party insurance rates are particularly higher.” 

The auto industry has been struggling with sales of new vehicles plummeting. The segment of non-life insurers has also seen a muted growth. In the April-January period, the motor insurance segment registered 9 per cent growth but state-owned insurers saw de-growth. On the contrary, the private non-life insurers have seen growth of 18 per cent in the motor segment in the same period. 

“These are draft proposals and all the concerned stakeholders have an opportunity to make their representations on the proposed hikes. Final decision will be taken by the regulator after examining the merits of the submissions made,” said Brahmajosyula said.