IRDAI proposes 14-108% rise in motor third party premiums

Private cars may see 29-108 per cent hike in TP premiums, two-wheelers could see 14-32% hike

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Motor third-party (TP) insurance premium might see a steep rise this year, with the Insurance Regulatory and Development Authority of India (Irdai) proposing an increase between 14 and 108 per cent from April 1.

According to Irdai’s exposure draft, released on Tuesday, small cars (below 1,000 cc) are likely to see a rise of 107.8 per cent in premium. Two-wheelers not exceeding 75cc could see a 14 per cent rise, while the 151-350 cc category will see a 32 per cent increase. However, the premium of high-end bikes above 350 cc could see a drop of 61 per cent in premium rates.

For 2015-16, general insurers had sought at least a 40 per cent increase in motor TP premiums. Senior sector executives had said, segments such as two-wheelers and auto-rickshaws that haven’t witnessed very large claims, could be incentivised with a lower rate of premium rise, while it could be higher for commercial vehicles.

“It is observed that there is a high increase in average death claim size for FY2013-14 over the previous year, and the increase in death claim size for the claims arising out of the policies issued in the years 2014-15 and 2015-16 (which would get settled over the next 8-10 years period) is expected to be much higher,” the exposure draft noted.

For private cars between 1,000 cc and 1,500 cc, a premium rise of 44 per cent has been proposed. Similarly, for those exceeding 1,500 cc, an increase of 28.8 per cent in TP premiums has been proposed. An increase of 14-81 per cent has been proposed for goods carrying vehicles and public carriers exceeding 12,000 kg. However, for vehicles up to 12,000 kg, a 14-20 per cent drop in premiums has been proposed.

The exposure draft is open to comments from stakeholders on the proposed rates. Comments will be accepted till March 20. Irdai will notify the final rates later, after considering the inputs.  

Every year, the insurance regulator brings out a draft proposal to increase the premiums in the motor TP segment, based on the claims experience. Irdai also considers insurers’ concerns, and that of consumer forums, while arriving at a price rise formula based on the claims.

According to the Motor Vehicles Act, there is no limit on vehicle owners’ liability. Non-life insurers say, an increase in claim awards by courts is seen every year because of this. However, according to the revised Road Transport and Safety Bill, 2014, which will replace the Motor Vehicles Act, the maximum liability for compensation to a victim, by the insurer linked to the regulated minimum premium, is Rs 15 lakh.

In four-wheelers carrying passengers for hire — such as small cars or taxis — not exceeding 1,000cc, the proposed increase in premium is 102 per cent. The proposed increase for the 1,001cc-1,500cc category is one per cent.

Auto-rickshaws, too, could see a 73 per cent increase in TP premiums.

In 2014-15, Irdai had raised premiums between nine and 20 per cent across vehicle categories. According to norms, third-party liability insurance is compulsory, while motor own-damage insurance is optional.

Currently, combined ratios in the motor insurance segment stand at 140-150 per cent owing to losses in the TP motor segment. According to estimates, payouts by insurance companies to individuals for motor TP-related accidents have risen 15-20 per cent.

For the April-December 2014 period, non-life insurers collected Rs 27,132.65 crore of motor premiums. Of this, Rs 14,251.60 came from the motor own damage segment, while Rs 12,881.58 crore came from the motor TP insurance segment.