IRDA hikes third-party motor premium rates by 5-20%

The Insurance Regulatory Development Authority (IRDA) is set to raise premium rates for third-party motor insurance policies by up to 20 per cent for 2012-13.

The third-party premium for personal cars and two-wheelers will rise by five per cent. For commercial vehicles, the premium will be higher by 15-20 per cent.

A circular with the details of the new rates is expected to come out tomorrow and the new rates will be applicable from April 1.

The move to raise the premium is in line with the regulator’s directive that the third-party motor premiums will be revised annually using a formula based on inflation and claim experience.

This is the second year in succession the insurance regulator is raising third-party premium rates. In April, Irda raised third-party premium rates by 10-68 per cent across all vehicles. This increase came after a gap of four years.

Third-party motor premium in India is regulated by a constitutional body – Tariff Advisory Committee – under Irda. During the last four years the committee failed to raise premium due to stiff opposition from transporter unions.

The latest increase is expected to bring relief to the general insurance industry, which is facing more than Rs 10,000 crore hit in its bottom line due to third-party motor pool losses.

Last week, Irda allowed insurers to provide for their loses in three tranches by June 30, 2014, rather than in one go. The companies will also be allowed to maintain lower solvency norms at 1.30 and 1.40 for 2011-12 and 2012-13 respectively.

Premiums collected by the general insurance companies stood at around Rs 44,000 crore during 2010-11, of which motor premiums constituted Rs 18,000 crore.

Typically, third-party liability accounts for 35 per cent of motor premiums. However, it is plagued with high loss ratios. The loss ratios will be 213 per cent for the current year, 183 per cent for 2010-11 and 163 per cent for 2009-10. A loss ratio in excess of 100 means for every Rs 100 collected as premium, over Rs 100 were paid as claims, thereby indicating losses. The industry took a hit of Rs 10,250 crore during 2010-11 on account of commercial third-party motor pool losses.