The Insurance Regulatory and Development Authority (IRDA) has proposed a premium increase for third party motor insurance of between 25 and 137 per cent for private cars and 1-45 per cent for two-wheelers, in an exposure draft.
According to IRDA, from 2009-10 onwards, there has been a steady increase in the size of death claims in this segment. The average size of death claims in motor TP policies has seen a 27.2 per cent rise for 2012-13 (as on March 30, 2013), compared to the previous year.
Every year, in April, the insurance regulator revises the third-party premium rates for all classes of vehicles based on an actuarial formula, which takes into account the loss ratios for insurers, inflation, higher awards by judiciary, and other factors.
While third party premium rates have gone up across most categories of vehicles, in certain categories such as goods carrying private carriers (other than three-wheelers), IRDA has proposed to cut premium rates by eight to 35 per cent.
In November, the IRDA sharply increased the provisioning (the money general insurance companies need to set aside to meet the high level of claims) to 210 per cent of the claims from 145 per cent, based on the loss estimates by an actuarial committee.
A senior official from a public sector general insurance company said the industry needs at least a 50 per cent hike to see the third party motor insurance portfolio break even, as the judicial awards by courts has been rising every year.
Motor insurance in India has two components: own damage cover and third-party cover. The latter is compulsory, to cover third-party damage in terms of property or life.
While own damage is a profitable portfolio for insurance companies, third-party motor insurance is highly unprofitable with claim ratios exceeding 140 per cent.
So, due to the high claims from commercial vehicles, insurance companies provide them cover from a common declined pool and not from their own books.
Last year, third-party motor insurance rates had gone up by an average 18-20 per cent after transporters opposed the 60 per cent hike demanded by insurers.