Centre hikes third-party insurance premium after a two-year hiatus

S Ronendra Singh | | Updated on: May 26, 2022
This is the first time that the MoRTH has notified the TP rates in consultation with the insurance regulator.

This is the first time that the MoRTH has notified the TP rates in consultation with the insurance regulator. | Photo Credit: VELANKANNI RAJ B

Two-wheeler sales may be adversely impacted, say industry veterans

The government’s decision to revise third-party (TP) insurance for automobiles on Thursday may hit buyers and adversely impact sales, especially in the two-wheeler segment which is already struggling with low market demand, said industry veterans.

Total two-wheeler sales grew by more than 15 per cent y-o-y to 11,48,696 units in April as against 9,95,115 units in April 2021. The growth in April sales was the first after recording negative numbers for the past 10 months.

According to a gazette notification by the Ministry of Road Transport and Highways (MoRTH), the revised rates for private cars with an engine capacity of 1,000cc will attract rates of ₹2,094 compared to ₹2,072 in 2019-20. Similarly, private cars with an engine capacity between 1,000cc and 1,500cc will attract rates of ₹3,416 compared to ₹3,221, while owners of cars above 1,500cc will see a drop in premium from ₹7,897 to ₹7,890.

Transporters not agitated

The premium for goods-carrying commercial vehicles exceeding 12,000 kg but not 20,000 kg will increase to ₹35,313 from ₹33,414 in 2019-20. In the case of goods-carrying commercial vehicles exceeding 40,000 kg, the premium will increase to ₹44,242 against ₹41,561 in 2019-20.

However, transporters are not as agitated about the revision this time as they were in 2017 when TP rates were raised. Given that the rates have remained the same for over two years, the hike was expected.

“Diesel, tyre, toll taxes and all materials costs have increased over the last one year, so there is no surprise on TP rates also going up, and we are not worried. It was expected; the government was doing it from April and now they are doing it from June, that is the only difference. It is justified anyway and a fair decision,” SP Singh, Senior Fellow at Indian Foundation for Transport Research & Training (IFTRT), said.

Mass segments hit

Two-wheelers over 150cc but not exceeding 350cc will attract a premium of ₹1,366, and for over 350cc, the revised premium will be ₹2,804.

“This steep hike may especially impact demand of mass segments like two-wheelers and smaller cars, which are already struggling to recover owing to huge cost increase in the recent past because of rapid regulatory changes,” Rajesh Menon, Director General, Society of Indian Automobile Manufacturers (SIAM), told BusinessLine.

The new base premium rates for a TP motor vehicle insurance will be effective from June 1, the notification said. These rates were last revised for FY20 and kept unchanged due to the pandemic.

The TP insurance cover is for other than own damage and is mandatory along with the own damage cover that a vehicle owner has to purchase. This cover is for any collateral damage to a third party, generally a human being, caused due to a road accident.

Earlier, TP rates were notified by the Insurance Regulatory and Development Authority of India (IRDAI). This is the first time that the MoRTH has notified the rates in consultation with the insurance regulator.

According to Shashank Srivastava, Senior Executive Director (Marketing & Sales), Maruti Suzuki India, the TP rates are revised every year, but due to the revision after a gap of two years, the quantum is looking big and there could be a marginal impact on the cost of ownership of cars.

“There may not be a big impact as overall economy/cost of ownership has increased already coupled with the rise in commodity prices, that has grown substantially over the recent past. This is calculated on a three-year basis so there could be a rise of ₹1,400-1,500 on our products like Swift and Baleno ... so we can say effectively ₹500 a year,” he said.

Srivastava added that this is not arbitrary and the government has done the calibration in revising the rates.

According to the notification, a discount of 7.5 per cent on the premium shall be allowed for hybrid electric vehicles. While electric private cars not exceeding 30KW will attract a premium of ₹1,780, those exceeding 30 KW but not 65 KW will attract a premium of ₹2,904.

Published on May 26, 2022
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