Private car and two-wheeler owners have a reason to rejoice: The Insurance Regulatory and Development Authority (Irda) has increased motor third-party premium only 9-20 per cent, against the proposal of up to 137 per cent.
The private car category will see a rise of 19-20 per cent across categories - the sub-1,000cc segment (which accounts for the Alto, the Nano, etc), the 1,000-1,500cc segment, as well as the category for cars exceeding 1,500 cc. In the two-wheeler category, third-party premia have been raised only 9-10 per cent, compared with the proposed 1-45 per cent, across categories - sub-75cc, 75-150cc, 150-350cc and more than 350cc.
The new rates are effective April 1, 2014.
In case of goods-carrying private carriers (excluding three-wheelers), motorised two-wheelers for passengers on hire, and motor trade (road risks), Irda decided to moderate the cuts. For hired vehicles with four or more wheels and carrying capacity exceeding the number of passengers and three-wheeled passenger vehicles on hire with capacity exceeding 17, Irda hasn't changed the current rates.
For the taxi segment (four-wheelers for carrying passengers, on hire), against a proposed third-party premium rise of 144 per cent, a rise of 19-20 per cent was announced. For auto-rickshaws (three-wheeled vehicles carrying not more than six passengers ), a 10 per cent rise in motor third-party premium was announced, against the proposed 27 per cent.
In a draft in February, Irda had proposed a steep rise in premia for 2014-15. In the draft on revision in premium rates for motor third-party insurance covers for 2014-15, released on Tuesday, Irda proposed an increase of 25-137 per cent for private cars and 1-45 per cent for two-wheelers.
General insurance executives had sent a representation to the regulator to consider an increase of 50-60 per cent in motor third-party premia, owing to the rise in loss ratios in this segment.
Motor third-party insurance is mandatory for all vehicles plying on Indian roads. It covers liability arising from third-party claims due to accidents. Motor third-party pricing is not de-tariffed by Irda; while deciding on the premia, the authority considers factors such as the cost inflation index notified by the Central Board of Direct Taxes, as well as the claims of companies.
Irda said the average size of death claims in motor third-party policies saw a 27.2 per cent rise in 2012-13 (as of March 30, 2013), compared to the previous year. From 2009-10, a steady increase in the size of death claims has been seen in this segment (barring 2010-11, when there was a 9.38 per cent rise, compared with a 16.26 per cent increase in 2009-10). The third-party pool for commercial vehicles was done away with about two years ago. However, the combined ratios for the motor insurance segment stand at 130-135 per cent, owing to losses in the third-party motor segment. A ratio below 100 indicates an insurer is recording profits.
There is unlimited liability in motor third-party policies. This means there is no limitation on the size of the claim. Therefore, a steady rise in death claims has been recorded year-on-year. The revised Motor Vehicles Act, yet to be tabled in Parliament, limits liability at Rs 10 lakh; insurers said this would help contain losses. It is estimated claims awarded in third-party insurance by courts have seen a rise of 15-20 per cent.
Non-life insurers say inadequate price rises in the third-party motor segment and unlimited compensation for third-party claims have led to high losses. Insurers say the claims ratio is significantly high---companies paid claims 60-100 per cent higher than the premium earned.
Motor insurance comprises two segments---the optional own-damage cover and the mandatory third-party cover.
Last year saw a 20-30 per rise in motor third-party premia across different categories, with an average increase of 18 per cent; insurers had sought a 40-50 per cent increase. Various transporter associations had expressed dissatisfaction at the steep rise proposed by insurers.