Motor insurance likely to remain muted amid Covid-19, say experts

It has been a year of contrasts for non-life insurers with regard to two of their biggest portfolios – motor and health. 

While health insurance saw a surge due to the Covid pandemic, motor insurance, on the other hand, struggled to gather pace owing to the lockdown, slowdown of the economy, and low vehicle sales as well as renewals. However, the situation is improving, albeit slowly.  

In Q1of FY21, motor insurance premiums dropped 24 per cent to Rs 12,011.75 crore as this period coincided with the strict lockdown that the authorities enforced to keep the number of Covid infections under check. 

In Q2, although the motor segment saw a drop in premiums, the extent of contraction was much lower compared to Q1. But in Q3, motor insurance premiums rose 8 per cent over last year, indicating a revival.

Experts said this is the result of higher new vehicle sales on the back of strong retail demand during the festive season and gradual rise in freight volumes and utilisation rates. 

Premiums in the motor segment increased 3 per cent in October, 7 per cent in November, 14 per cent in December, and 3 per cent in January. However, in the April-January period of FY21, this segment continued to be in the red.

Aditya Sharma, head of motor business, Bajaj Allianz General Insurance, said, “In the last three months, the industry has seen growth in the motor segment. Both two-wheeler and four-wheeler segments are doing well, but the commercial vehicles (CVs) market has still not recovered. New CV sales have increased in the last couple of months but could not cover the deficit as renewal and rollover businesses have still not improved. Overall, new sales have improved and renewals have also seen an uptick.”

“But, on a year-to-date basis, the industry may end with 5 per cent negative growth this financial year compared to last year. Earlier, the expectation was that there will be a de-growth of 10-12 per cent. But, in the current quarter, there will be a double-digit growth,” he added.

The motor premium is a function of new car sales and old car renewals. Generally, old car to new car ratio is 1:5.

“Even if one sells more insurance cover to new cars, you still need renewals to grow. There also, we have to factor in old cars, where the renewal premium goes down by 10-15 per cent every year. Now, new car sales have been reasonably good from October but when it comes to CVs that has not been the case. But we are seeing some improvement in that segment. So, with new car sales increasing and income levels of people improving, it may result in more renewals. And, by the end of the financial year, their may be marginal growth in the motor segment,” said the chief executive officer (CEO) of private general insurer.

While renewals were extremely low in the initial months of the pandemic resulting in lower premiums, the industry benefited hugely from the low claims as less number of vehicles were plying on the road due to the lockdown. 

But, with the gradual opening up, motor insurance claims are also back to pre-Covid levels in the last two months. “The first few months of FY21 saw de-growth in the motor segment as people were confined to their homes and did not use vehicles. So, they did not bother to insure their vehicles. But as the economy opened up, people started taking cover,” said MN Sarma, secretary general, General Insurance Council.

Motor insurance has 33.42 per cent in non-life insurers’ business in FY21, down 265 basis points from FY20. In the same period, health segment rose 300 per cent to capture 30 per cent of the business of non-life insurers.