IRDAI proposes 15% hike in third-party premium on small and medium vehicles

The insurance regulator had in March this year deferred the hike in third party insurance premium due to the elections.

A day after the Lok Sabha election process ended, the Insurance Regulatory and Development Authority of India (IRDAI) on Monday proposed a 15 per cent hike in third party (TP) motor insurance premium for small and medium private cars for the year 2019-20. It has also proposed a hike in third party insurance for two-wheelers and heavy vehicles for the current year. The insurance regulator had in March this year deferred the hike in third party insurance premium due to the elections.

IRDAI has proposed a 14.60 per cent hike in private cars below 1000 cc engine to Rs 2,120 and a 15.26 per cent increase to Rs 3,300 for cars with engine capacity of 1000-1500 cc. There is no change in the premium of Rs 7,890 for cars above 1500 cc capacity. In the case of two-wheelers (between 150 cc and 350 cc), it has proposed a 21.11 per cent increase to Rs 1,193. For two-wheelers between 75 cc and 150 cc, it proposed a 4.44 per cent rise in premium to Rs 752. The premium for two-wheelers above 350 cc remains at Rs 2,323.

In the case of goods carriers with gross vehicle weight (GVW) up to 7500 kg, it has proposed to increase the TP premium from Rs 14,390 to Rs 15,746, for vehicles with GVW between 7,500 kg to 12,000 kg, the rate will go up from Rs 24,190 to Rs 26,935 and for vehicles between 12,000 kg to 20,000 kg, the rate will rise from Rs 32,367 to Rs 33,418.

According to IRDAI, a discounted price of 50 per cent of the proposed rate based on the erstwhile Indian Motor Tariff (IMT) has been proposed for those private cars identified as vintage cars by the Vintage and Classic Car Club of India. It also proposed a discount of 15 per cent on motor TP premium rates for electric private cars and electric two wheelers. This will be an incentive to use environment friendly vehicles, IRDAI said.

In March 2019, IRDAI had decided not to increase the annual premium for TP policies until further orders. Insurers were then expecting TP premium, currently regulated by IRDAI, to rise by 20-30 per cent going by last 6 years trend. Over the last 6 years, third-party premiums increased by 29 per cent for car and 23 per cent for two-wheelers on an average.

Every year, the regulator decides the third party insurance premium that remains the same across all the insurers. The premium is evaluated considering the annual claims data of all insurers across different cubic/engine capacity of the vehicle. Under a motor insurance policy, there are two major components: Third-party insurance and Own Damage Insurance. As per The Motor Vehicles Act, 1988, it is mandatory to insure vehicles with at least third-party insurance cover.


Rise likely in FY20 TP premium

The motor insurance business, one of the biggest revenue generators for the insurance industry is likely to witness a rise in third party premium in 2019-20 after a delay of almost two months. The proposed hike is at a time when public sector companies have cited the unfair market practices and undisciplined market for losing market share after the insurance regulator unveiled new MISP (motor insurance service providers) norms that limited the percentage of commissions that can be paid to the authorised dealers.

Last year, IRDAI had reduced third-party premium for small cars not exceeding 1000 cc. However, it had increased rates for bikes with higher engine capacity. Third-party insurance insures the first party or the vehicle owner against damages caused by the vehicle to third parties. Third parties may include pedestrians, other vehicles, or even someone s property. TP insurance protects insured from any legal liability arising due to damages caused to third parties during road accident.

According to officials, insurers have sought the use of telematics for calculating premium. This means that the premium could vary for customers depending on the driving habits and behaviour. This is done based on the findings of the telematics or black box, which is fitted in the car to monitor the driving habits, quality and distance of roads travelled.

Last year, public sector general insurers led by New India Assurance (NIA) except Oriental Insurance Company (OIC) lost out heavily in their motor business to private sector companies which are offering higher commission above the cap set by the insurance regulator IRDAI. NIA, United India Insurance and National Insurance Company have seen de-growth in their motor business during the year and together the four companies have shed almost 5 per cent from 45 per cent to 40 per cent of motor business to their private sector rivals in 2018-19.