Insurance for your car is set to get more expensive this year, with the regulator increasing the premium for third-party cover by 20 per cent and insurers planning to hike ‘own damage’ rates for comprehensive policies as well.

Motor insurance in India has two components — one covering third-party damage in terms of property or life, and the other covering damage to one’s own vehicle.

The third-party coverage is mandatory by law for both commercial and personal vehicles, and the premium in this segment is decided by the Insurance Regulatory and Development Authority. However, the ‘own damage’ insurance cover is not mandatory.

“The 20 per cent hike in premium is not adequate to stem the losses in the third party motor insurance segment.

“Even though the ‘own damage’ portfolio in the case of personal vehicles is profitable, we will have to hike premiums by around 15 per cent at least in this segment as well to offset our losses in the third-party portfolio,” said a senior official from a general insurance company

With high loss ratios in the commercial vehicles segment, third party motor insurance is a bleeding portfolio for general insurance companies. Insurers were seeking at least a 60 per cent increase in premiums to offset high claims in this segment.

In its exposure draft, the IRDA had proposed a 60-100 per cent increase in third party premium for goods and commercial vehicles. However, after stiff opposition from transporter associations and getting feedback from various stakeholders, the IRDA moderated the hike to 20 per cent for all vehicles.


“The hike of 20 per cent is not sufficient considering the quantum and number of third-party claims being reported. Currently, customers/segments having low or no claims subsidise those with high claim. So de-tariff of the third party cover might be the only ideal solution to the issue,” said Mukesh Kumar, Head - Strategy Planning, HR and Marketing, HDFC ERGO.

According to Vijay Kumar, Chief Technical Officer, Bajaj Allianz General Insurance, a good driver may not be affected by the hike as the ‘own damage’ part of motor insurance premium depends on various variables.

(This article was published on April 5, 2013)
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