Motor TP segment may see steeper premium hikes in 2015-16

Commercial vehicles to bear the burden as both private and public insurers have demanded the hike to cover losses

Vehicles owners — private and commercial — might have to shell out at least 20 to 25 per cent more as motor third-party premiums from April 1.

Both public and private insurers have sough the hike for 2015-16 to make up for losses in the segment.

A regulated sector, third-party coverage is compulsory for all vehicles on Indian roads. Premiums for this insurance — intended to cover the liability of vehicles owners to third parties in accidents — rise annually. Own damage cover is optional.

“The rise in premium in the past few years has not been commensurate with the losses reported in this segment. Even the combined ratio are far above 100 per cent,” said the head of underwriting at a private general insurance company.

Combined ratio refers to the ratio of losses and expenses compared to the income (premiums) in a particular segment. Anything above 100 per cent refers to the fact that the ins             urer is not making underwriting profits in that segment. For  2015-16, general insurers have sought at least 40 per cent hike in third-party insurance premium. Senior industry executives said segments like two-wheelers and auto-rickshaws, where large claims have been fewer, could be incentivised with a lower rate of premium hike. Commercial vehicles would have to bear most of the burden.

The insurance regulator brings out the draft proposal to increase the premiums for the motor third-party segment.

Later, they take into consideration the insurers’ concerns and the opinion of consumer forums, before arriving at a price hike formula, based on the claims in the category.

As per the Motor Vehicles Act, there is no limit to the liability of vehicle owners. Non-life insurers say due to this, an increase in claim awards by courts is seen every year.

In 2014-15, the Insurance Regulatory Authority of India (Irdai) had raised premiums between nine to 20 per cent, across vehicle categories.

The commercial vehicle segment has been a concern in the motor segment, owing to which insurers had sought steep rises (at least 55-65 per cent) in overall third-party premiums. They feel the rise for 2014-15 hasn’t been commensurate with the claim size.

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.

The general insurance segment is also considering linking motor pricing to individual behaviour, as well as the location of the vehicle. For instance, if a vehicle is chauffeur-driven and runs within a small city, or if it is driven by a woman, the premiums might be lower. For vehicles driven in hilly areas or difficult terrain, the premium might be higher.

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