Hike in third party motor premiums will only cover inflation cost: Insurers

With the non-life insurers reeling under high loss ratios in the motor insurance segment for years, the hike in third party motor insurance premium proposed by the Insurance Regulatory and Development Authority of India (Irdai) is being welcomed by the general insurers but industry experts believe that the proposed hike will only help insurance companies to meet their cost of claim inflation caused by increasing court awards in favour of third party claimants.

However, from the policyholder’s perspective, the hike in premiums might be a trigger for not renewing their insurance policies thus giving rise to fake insurance policies to avoid getting fined by the traffic police.

“Price increase which is proposed now by the regulator may cover inflation cost as far as insurers are covered. The long tail effect may not be known at this juncture,” said Tushar Dhimar, National Underwriting Manager – Retail, SBI General Insurance.

According to Devendra Rane, Founder & Chief Technology Officer, Coverfox.com, “The insurers are definitely going to welcome this move as the loss ratio for the motor insurance category has been high since many years, thus making it an unprofitable segment,”.

The insurance regulator has proposed a hike in the third party insurance premium of cars, two wheelers, and transport vehicles. IRDAI has proposed to increase the rates for cars by 15 per cent with engine capacity up to 1500 cc and for bikes by 20 per cent with engine capacity of 150 cc to 350 cc, while luxury cars and superbikes will see no change in its premium rates.

“The cost does increase for customers; however the change is incremental and not steep, especially in the small car and the two wheeler segment.  The increase also takes cognizance of the trend in rates and ensures increases only where warranted”, said Shanai Ghosh, Chief Marketing & Commercial, Strategy Edelweiss General Insurance.

The insurance regulator, however, has suggested no change in the single premium for a three-year policy for new cars and five-year policy for new two-wheelers.

"The long term third party policies that are issued with the purchase of new vehicle like private car/two wheeler have not been increased. It continues to be at the same levels as of September 2018. This is only for the yearly renewal policies. For people who buy new cars, two-wheelers, they will not be affected", said Sanjay Datta, Chief - Underwriting & Claims at ICICI Lombard General Insurance.

Moreover, the Irdai has also proposed a discount of 15 per cent, on motor third party premium rates for electric private cars and electric two-wheelers. It has also not hiked the premium rates for e-rickshaw.

This is indeed a very good move by the regulator to promote electric vehicles in one way. More is required on this front on subsidy in terms of vehicle cost which will make use of greener vehicles more helping country to reduce pollution, added Dhimar of SBI general insurance.

The motive behind the discounts given to the e-vehicles is to increase the usage of such vehicles, added Sanjay Datta.

Says Rakesh Jain, ED and CEO of Reliance General Insurance, "The new draft proposal doesn't have any impact on new business as there hasn't been any change in insurance premium of new purchase of two wheeler and car. While there may be a change in renewal premium, the rise can be easily absorbed by customers.’’