Third-party motor insurance premium hike not enough: Industry

The much-anticipated upward revision in third-party (TP) motor insurance premiums, after almost three years, proposed by the insurance regulator in a draft notification a few days ago, has not enthused the general insurance industry, given the hike proposed for the overall portfolio is in low single digits — around 3 per cent.

While the proposed hike is marginal, it will bring some relief to insurers, who have, of late, seen award amounts granted by courts go up significantly, impacting the profitability of their portfolio, said industry experts.

The Insurance Regulatory and Development Authority of India (Irdai), along with the Ministry of Road Transport and Highways (MoRTH), released a draft notification for revising TP motor premium rates for 2022-23, wherein they have proposed a hike of 1–23 per cent for long-term policies for new cars and 16–35 per cent increase for long-term policies for two-wheelers (excluding less than 75 cc two-wheelers). Similarly, when it comes to renewal premium for private cars, the proposed hike is in the range of 1–6 per cent; for two-wheelers, it is 12–20 per cent.

With no increase in two years and only a single-digit increase in 2019, the expectation was that the regulator may propose a double–digit hike. In the past, the general insurance industry has seen TP premium increases in double-digits for the blended pool.

“On overall basis, the hike that has been proposed is around 3 per cent. It is a good start, given we had not seen a hike in TP motor premiums in some time. However, it is not enough when you see the inflation in the awards given by courts. Also, the loss ratio in this segment moves slowly because of delayed reporting,” said an executive of a large private-sector insurer.

T A Ramalingam, chief technical officer, Bajaj Allianz General Insurance, said, “The overall hike across all lines of business in the TP motor segment is marginal — around 3 per cent — because some discounts have been given with respect to electric vehicles. The overall hike is not that steep, but the long-term policies have seen a decent increase.”

TP motor insurance is mandatory for vehicle owners. It protects the insurer from any liability caused by accidents. Although insurance pricing is deregulated, TP motor premium is fixed by the insurance regulator, along with MoRTH. Generally, Irdai and the ministry revise TP motor premiums every year, based on claims paid by insurers during a certain time period.

According to a report by ICICI Securities, the overall motor loss ratio (own damage, or OD + TP) has moved between 70 per cent and 80 per cent. While TP loss ratios used to be higher earlier, now TP and OD loss ratios have converged, which could, possibly, be because of long-term TP policies.

Suresh Ganapathy, associate director, Macquarie Capital, said, “Since companies sell OD and TP in bundles as a comprehensive package, a higher TP motor increase could potentially have resulted in more aggressive price competition in motor OD (as some may choose to cross-subsidise). The lower increase will now tie the hands for many competitors.”

“Currently, the market is very competitive. There is not much margin to give aggressive discounts in their OD policies,” added Ramalingam.