Car, truck insurance premiums set to go up

Your car/truck insurance bills are set to go up. This could happen as insurance companies may hike premiums by as much as 40 per cent for commercial vehicles and 10 per cent for two-wheelers and personal cars to compensate for high claims in the motor insurance business.

The general insurance industry is currently in discussions with the regulator on the revision of premium rates for third party motor insurance which will be applicable from April.

THIRD PARTY COVERAGE

Motor insurance in India has two components  one covering third-party damage in terms of property or life and one covering one’s own damage.

The third-party coverage is mandatory by law for both commercial and personal vehicles.

The Insurance Regulatory and Development Authority had earlier come out with a formula based on inflation and claims experience of insurers to account for risk based pricing for revising premium rates.

TRANSPARENT FORMULA

It’s a very transparent formula by which the increase will be given but the problem is that the start itself is 40 per cent lower than what it should be. Though there has been an annual increase in premium rates it is still not adequate and it is trailing behind the claims. So the industry needs a correction of 40 per cent in third party motor premium, said G. Srinivasan, CMD, New India Assurance.

In line with the recent Supreme Court judgments, the compensation amount awarded is now likely to be higher for an individual with no fixed income, the self employed and also for unmarried persons the amount awarded is likely to be decided on the basis of the age of the deceased rather than the age of the dependents.

These two rulings would have the effect of a further increase in outgo of claims by 15 to 20 per cent, said Ravichandran, President Insurance, Tata AIG General Insurance.

Typically, third-party liability, which accounts for 35 per cent of motor premiums, is plagued with high claims ratios in the range of 150 of 200 per cent in 2012-13.

According to industry estimates, nearly 70 per cent of two-wheelers and 35 per cent of four-wheelers are uninsured even though they are legally required to have a cover, which is a huge structural problem for insurers.

Furthermore, insurers are also seeking an amendment to the Motor Vehicle Act to include a cap on liability as currently the motor vehicle liability is unlimited.

A premium hike is necessary as the supply side issues have been taken care of with the declined pool mechanism, but there is a still a big deficiency in the premiums collected vis-a-vis claims outgo of insurers, added Ravichandran.

http://www.thehindubusinessline.com/industry-and-economy/banking/car-truck-insurance-premiums-set-to-go-up/article4361599.ece