Premium hike unlikely to help motor insurers cut losses

Losses in the motor insurance segment are likely to remain high, even though premium rates are set to increase. This is because the expected rise in premia is unlikely to make up for insurance companies' losses, say experts.

Third-party motor premium is regulated by the Insurance Regulatory and Development Authority of India (Irdai) and revised yearly, based on inflation and claims. This type of insurance is mandatory for all motor vehicles plying on Indian roads and it covers the vehicle owner from third-party liability arising out of accidents.

Irdai had recently proposed third-party insurance premia increase in the range of 9 to 30 per cent across categories.

For private cars with engine capacity not exceeding 1,000 cc, Irdai has proposed a hike of 30 per cent in premium, while it would be 25 per cent for those exceeding 1,000 cc.

For two-wheelers up to 350 cc, the proposed increase is 10-15 per cent, while a 10 per cent drop has been proposed for vehicles exceeding 350 cc. For commercial vehicles, an increase of 25-30 per cent has been proposed.

Based on the comments from stakeholders, Irdai will bring out the final rates to be applicable for the financial year, beginning April 1. According to experts, the regulator is likely to keep the increase to bare minimum keeping in mind the impact of premium hike on customers.

The motor insurance segment had reported a 10.52 per cent growth in the last financial year, compared with 14.15 per cent in 2013-14. However, losses with respect to claims have remained high.

One reason why losses in the sector have remained high is that the rewards being awarded are also going up, says Sanjay Datta, chief of underwriting, claims and reinsurance at ICICI Lombard General Insurance. "These rewards are linked to the minimum wages that are going up. Hence, losses will remain high."

The net incurred claims of non-life insurers stood at Rs 55,232 crore in 2014-15 against Rs 49,179 crore in 2013-14. The incurred claims exhibited an increase of 12.31 per cent during 2014-15. Among the various segments, health insurance and motor insurance had a high claims ratio at 96.93 per cent and 77.14 per cent, respectively. In the motor insurance space, while premia have seen growth, rewards from the compensation from third-party incidents have seen 20-30 per cent expansion.

General insurance companies have demanded a yearly premium hike of 50-60 per cent. However, the premium usually goes up only by 15-20 per cent in a year, putting pressure on insurers.

Delays in resolutions of cases have a cost-effect on insurers. To provide a separate forum for dealing with third-party claims in case of motor accidents, Motor Accident Claims Tribunals have been set up under the Motor Vehicles Act. However, the number of cases pending before these tribunals is huge.

IN THE DRIVER'S SEAT

• For private cars with engine capacity not exceeding 1,000 cc, Irdai has proposed a hike of 30 per cent in premium, while it would be 25 per cent for those exceeding 1,000 cc
  

 

For two-wheelers up to 350 cc, the proposed increase is 10-15 per cent, while a 10 per cent drop has been proposed for vehicles exceeding 350 cc
 

For commercial vehicles, an increase of 25-30 per cent has been proposed