Car insurance to cost 10% more, trucks 50%

Brace for a hike in vehicle insurance premiums. Motor insurers have sought a 5-10% hike in third-party premiums for two-wheelers and personal cars, and a whopping 40-50% for commercial vehicles, saying claims continue to push them deep into the red.

A premium hike in the third-party segment is inevitable. There is a wide gap still existing in premiums collected and claims provisioning made by the insurers. It is necessary to bridge the gap,” said S S Gopala Rathnam, MD, Chola MS General Insurance.

Motor insurance in India has two components  one covering ones own damage, and the other covering third-party damage in terms of property or life. The third-party coverage is mandatory by law for both commercial and personal vehicles. It provides coverage for any kind of damage to a third-partys life or property.

The Insurance Regulatory and Development Authority had earlier come out with a formula based on inflation and claims experience of insurers to revise premium rates for third-party insurance cover across segments. It will start discussions with the general insurance industry next week on the revision of premium rates for the coming fiscal.

Third-party business accounts for 30-35% of the total premium collected by insurers from the entire motor business. A hike, therefore, will benefit insurers who are battling higher loss ratios.

Loss ratio refers to a situation where say for every Rs100 collected as premium, over Rs100 is paid as claim, thereby incurring a loss.

The industry is looking at a Rs10,000-crore hit on its bottomline due to such claims.

In April last year, the regulator dismantled the third-party motor pool where all motor insurers used to share the risk arising out of third-party motor claims.

According to insurers, around 45% provisioning for meeting liability arising out of motor pool before its dismantling has been completed. Now, there is a gap of around 30% in claims incurred and premium collected from this segment.

Currently, there is only a declined pool, which is much smaller in size. Private insurers want Irda to do away with even this the next fiscal. However, the regulator is reluctant to do away with the pool completely as it may increase the burden on public sector insurers in underwriting such covers.

There should be a declined pool for some more time. There has not been sufficient correction in third-party cover prices and also, the Motor Vehicles Act is yet to be amended. Without fixing these issues, a complete dismantling of the pool would mount pressure on public sector insurers, said G Srinivasan, chairman and managing director, New India Assurance.

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