Third party motor insurance cover costs set to soar

Come April and your third party (TP) motor insurance will pinch your pocket more. The Insurance Regulatory and Development Authority (IRDA) has proposed a 38.87% weighted jump in TP motor insurance for private cars across all sub classes in the exposure draft for revision of premium.

The revision will hit owners of the entry-level cars — below 1000CC segment — the most as the rise in TP cover proposed for this category is 85%. This high-volume segment includes cars like Alto, Eon, Spark, Nano. The minimum increase — only 1.4% — will be in the 1,000-1500 CC category, which includes Swift, Ritz, Beat, Santro and i10. For over-1500 CC cars, the premium will jump by 43%.

TP premium for commercial vehicles will increase too in most cases. However, in two categories, the premium may come down as well. The weighted average for the proposed increase is around 30% for commercial vehicles.

From 2011, third-party premium price is reviewed annually by the regulator based on various parameters owing to the high loss ratio in the segment.

Unlike own damage insurance, which is optional, third-party motor insurance is mandatory for all car owners — be it private or commercial. The idea behind TP motor insurance is to settle the claims of victims, other than car owners.

The own damage insurance covers the car and the owner/driver. The loss ratio in motor (TP) ranges between 120% and 200%, which implies for every Rs 100 premium collected payment ranges between Rs 120 and Rs 200.

Sources close to the development said the maximum hike in premium price was proposed in the entry-level category because the accident rate is quite high in this segment. “The number of first-time owners is very high in this (below 1000CC) segment,” a source said.

The TP premium was first revised after the new guidelines came out in March 2012. However, it was challenged in the Calcutta High Court, following which IRDA issued an exposure draft asking for comments on the proposed rates. Incidentally, TP claims used to be settled from a TP pool earlier, which was discontinued eight months ago.

Commenting on the new proposals, ICICI Lombard customer service chief Sanjay Dutta said it would help reduce the loss ratio. An official of Oriental Insurance Company also added that it will help reduce loss ratio. However, sources in National Insurance said the high loss ratio in TP is largely due to commercial vehicles, which should have been increased more.

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