General insurance companies are seeking at least a 50 per cent increase in third-party motor insurance premium rates to compensate for heavy losses in this segment.

If the insurance regulator agrees, it would mean, for instance, that the third-party motor insurance premium for a new Maruti Swift Dzire Automatic in Mumbai, currently at around ₹1,200, will go up to ₹1,800 from April.

Last year, third-party motor insurance rates had gone up by 20 per cent after transporters opposed the 60 per cent hike demanded by insurers. Two years ago, these rates had gone up by 65 per cent.

The premium rates for third-party motor insurance in India are fixed by the Insurance Regulatory and Development Authority (IRDA).

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.

In November, 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.

Loss-making proposition

This has placed an additional burden on general insurers, who already face a high level of claims in this segment.

Amarnath Ananthanarayanan, Managing Director and CEO of Bharti AXA General Insurance, said the industry needs a steep hike in premium as the big jump in provisioning shows that for every rupee collected as premium, insurers pay out double the amount through claims.

According to KG Krishamoorthy Rao, Managing Director and CEO of Future Generali Insurance, for insurers, the loss on account of third-party insurance is ₹8,000 to ₹10,000 crore this 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. So, due to the high claims ratio from commercial vehicles, insurance companies provide them cover from a common declined pool and not from their own books.

“Based on the figures and seeing the claims experience, in our opinion, an increase of 40 to 50 per cent is what needed to make the portfolio break even,” said G Srinivasan, CMD of New India Assurance. “While the annual increase is a good practice, the premium has not matched up with the claims. So, we hope the regulator will take that into account.”