Your vehicle’s third-party (TP) motor insurance premium rates are likely to be revised upwards by up to 10 per cent this fiscal after remaining unchanged last year.
TP motor insurance rates, the only segment which continues to be regulated by regulator IRDAI, are revised every year in April. However, due to Covid-19 the rates were not revised last year.
This year, the regulator is yet to come up with the revised rates. However, going the industry has been clamouring for around 10 percent hike on average, say experts.
Sources at General Insurance Council, the industry body, confirmed that the council is writing a letter to IRDAI, requesting it to increase the TP motor insurance rates by 10 percent.
The reason cited for the same is that there is an increase in liability for the insurers under the segment due to various Supreme Court judgments in the recent past.
However, some believe that people didn’t use their cars much due to the lockdown so there was no room left for increasing the rates.
PC Kandpal, MD & CEO, SBI General Insurance, a private sector general insurer, says, “The insurance regulator, IRDAI, advises revision in third-party motor premium rates on an annual basis, if warranted. Due to the prevalence of pandemic and the subsequent lockdown, we have seen a decrease in the number of vehicles on the road especially in the initial months during the last financial year.”
“Consequently, we have also observed a decrease in the number of accidents and claims reported resulting in improvement in loss ratios although this may be a temporary phenomenon. The final decision on rate revision will be at the discretion of the regulator and they can be expected to take a judicious call after taking into account the interests of all the parties concerned,” Kandpal added.
Some insurers, however, believe that rates must go up so as to maintain the viability of the motor insurance portfolio, which comprises the largest segment for the general insurers.
And they have reasons to prove their point. First, in place of public transport, people used private vehicles the most during the pandemic period. Secondly, there might be a sight fall in the claim ratio under the segment when compared to the previous fiscal, but it doesn’t mean that the claims have come down.
People were unable to come out of their homes to make claims and they will start pouring in once the situation normalises.
Moreover, various Supreme Court orders in the recent past have been quite beneficial to the policyholders but have come at a cost to the insurers. This strengthens the case for premium hike.
Atul Sahai, New India Assurance CMD, says, “Motor TP claims were slightly lower in FY21 due to reduced frequency in the lockdown. However, if you see the last two quarters of the year, the claims reported have come back to normalcy.”
“Claim severity continues to increase due to inflation.”
Considering that while FY21 was an exception, the industry needs a premium hike in FY22 at least to cover the claim inflation, Sahai adds.
In the past, a driver could get away just by paying a fine of Rs 1,000, if caught driving around with a lapsed policy. However, with the new Motor Vehicle Act 2019, they have to pay Rs 2,000 for the first time and the fine doubles for repeating the offence. This fear factor might have helped the segment to grow.
Still, the fact is that around 60 percent of vehicles in our country are uninsured and this is a big issue considering that over 5 lakh accidents get reported in India every year with over 1.5 lakh deaths.
Moreover, as per the latest figures released by the National Crime Records Bureau, almost 2.5 lakh vehicles are stolen in India each year out of which only around 25 per cent are recovered
“Now personal vehicles are preferred over public transport. The need is already felt for TP motor price hike by various stakeholders. This requires careful assessment,” Sharad Mathur, Managing Director & CEO at Universal Sompo General Insurance says.
Alternatively, there should be a cap on third party liability and fixed time period for filing a claim, ensuring better viability of TP motor segment which can lead to modest pricing, he added.
The Motor Vehicles Amendment Act, 2019, part of which has already been implemented in part, is further likely to increase the insurers’ liability under the segment.
The liability of insurers, once the new amended Act comes into force fully, will increase by almost 10 times that of the existing liability.
Also, a time-limit has been provided under the Act for settlement of claims, failing which the insurers will be obliged to pay interest on the settlement amount for the delayed period.
The motor third party (TP) premium, which has not been hiked by the IRDAI in FY2020-21, has grown by 5 percent last fiscal and motor (own damage) segment has surged by 150 percent while the premium out of comprehensive motor insurance package ( TP and own damage) contracted by 10 percent during the period.
(Kumud Das is a Pune-based teacher and freelance journalist, who writes on insurance, banking and human interest stories)
