Insurers ask for 50% increase in motor third party premiums

Rising claims, losses might lead to steep rise in rates

General insurance companies want a 50 per cent increase in premiums for the third-party (TP) motor insurance segment in FY15. TP motor insurance, which is mandatory for all vehicles plying on Indian roads, covers liability arising from third-party claims due to accidents.

G Srinivasan, chairman and managing director of New India Assurance, said: "We need 40-50 per cent increase in premiums. We have submitted the relevant data justifying the need for this hike in motor TP premium."

Motor TP pricing is not de-tariffed by the Insurance Regulatory and Development Authority (Irda). The authority considers factors such as cost inflation index notified by the Central Board of Direct Taxes and claims experience of companies while deciding on the premiums.

Irda officials said they are looking into the representation on premium hike by general insurers. "We will have to take views from all stakeholders before taking a decision," said an official, adding there would be an increase.

It is almost two years since the third-party pool for commercial vehicles was done away with. However, the combined ratios for the motor insurance segment stand at 130-135 per cent for the industry, owing to losses in the third-party motor segment. A ratio below 100 per cent indicates an insurer is making profits.

A senior executive with a large private general insurer said Irda might increase premiums by 30-35 per cent, on the back of rising claims and underwriting losses in the segment. "If they (Irda) don't, we will have to increase retail premiums," he added.

Non-life insurers said inadequate price rises in the TP motor segment and unlimited compensation for TP claims have led to high losses. Insurers said the claims ratio was significantly high - companies paid claims that were 60-100 per cent higher than the premium earned. Motor insurance comprises two segments - own damage cover, which is optional, and the mandatory third-party cover.

Last year, there was a 20-30 per cent increase in motor TP premiums across different categories of vehicles, with an average increase of 18 per cent. Insurers, on the other hand, had demanded 40-50 per cent increase. Transporters associations had expressed their dissatisfaction with this steep rise proposed by insurers.

Estimates suggest there is an average 15-20 per cent increase in the quantum of claims awarded in TP insurance by courts. Under the declined pool, insurers have the right to refuse or decline TP insurance if the asset is found too risky to underwrite. The declined vehicle would be given a cover by another insurer; however, the risk would be ceded or transferred to the declined pool. For other vehicles, insurers would be free to underwrite risks independently.