Motor Thirdparty Premium Rate

In a relief to insurers, third-party premiums for motor insurance are set to rise.

Every financial year, the Insurance Regulatory and Development Authority of India (IRDAI) reviews the loss ratios of motor insurance companies and the total number of claims raised to set up the third-party premium rate (TPR) for the next financial year. The IRDAI put the brakes on this process during the COVID-19 pandemic to give relief to policyholders.

However, insurers are under pressure as there has been a significant rise in the number of third-party claims after the initial decline in the number during the pandemic. Insurers also establish incurred but not reported reserves (IBNR) for third-party liability insurance which impacts their overall loss ratios and profitability. IBNR are the reserves for claims that become due with the occurrence of the events covered under the insurance policy but have not been reported yet. These claims get reported to insurers with substantial delay.

In relief to insurers, the IRDAI recently proposed a hike in the TPR for motor insurance. The draft IRDAI circular proposes a 5% to 21% increase for annual premiums for two-wheelers with the premium on bikes above 350 cc hiked the most at 21%. Mid-level 150-350 cc bikes premiums have been hiked by 15% and premiums on mass-market 75-150 cc two-wheelers have been increased by 5%.

During the pandemic in the last two years, fewer vehicles have been seen plying on the highways. The courts, on the other hand, have been functional during the pandemic, with the value of the awards increasing for a variety of reasons. Given the impact of the ground situation, the industry can expect another round of premium hike in third- party rates. This is also as we expect more vehicles to return to the roads sooner rather than later.

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References:

1.      Vehicle Insurance: Motor insurance premiums to rise, steepest for two-wheelers – The Economic Times (indiatimes.com)