The recent hike in premiums of motor third party insurance may not bring cheer to the general insurers. The hike is “not sufficient” to cover up losses, say general insurance players.

The Insurance Regulatory and Development Authority (IRDA) had announced a 10- 68 per cent hike in premium rates of two-wheelers, cars, trucks and buses, ten days ago.

Will not break-even

Mr G. Srinivasan, Chairman and Managing Director, United India Insurance, said the hike is a welcome move, however insurers feel it is insufficient considering the loss ratio.

With the 70 per cent hike in truck and bus premiums, insurers will not break-even on motor third party for this loss-prone segment. The loss-ratio borne by insurers would still be 110-115 per cent.

A minimum hike of 80 per cent on premium of trucks is required, even this is inadequate to absorb the losses arising from claims of third party on motor accidents, said Mr M. Ramadoss, Chairman and Managing Director, New India Assurance.

“As the current loss ratio is 150-180 per cent in this segment, this may not totally improve the industry scenario,” Mr K. N. Murali, Vice-President and Head of Motor insurance, Bharti AXA General Insurance told Business Line .

Mr S. S. Gopalarathnam, Managing Director, Cholamandalam MS General Insurance, said insurers would be able to scrape through with the increase as they will only be able to meet the claims cost. At least a 20 per cent further increase is required to take care of the management costs of insurance companies. The insurance regulator proposed to hike the premium for trucks by 80 per cent in the draft guidelines, but finally it has gone up only by 68 per cent.

Annual increase clause

The annual increase clause is an important feature which would take into account the increase in inflation, trend in awards given by courts (relating to motor third party accidents) and management expenses of insurers, said Mr Srinivasan.

However, the hope for the companies is the new clause which provides for annual revision of premium rates (as against once in four-five years revision being followed currently).

“This helps as accumulated losses could kill the industry in the existing practice of revising premium rates once in four-five years,” said Mr Murali.

According to a functionary of Tata AIG General Insurance, the hike in premium rates may not hit the owners of the vehicles hard.

“Though the hike appears significant from a policyholder perspective, the increasing competition in the industry is leading to concessions in own-damage segment of motor insurance. This may cushion the hike in rates of third party liability cover which is mandatory,” he said.

The motor pool is a corpus of premiums transferred from all the insurers to take care of losses arising from motor accidents to third party. This pool set up five years ago is running at a deficit. The total losses are estimated at Rs 3,614 crore for the last four years.

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