General insurers are in a fix as the Insurance Regulatory and Development Authority has moderated the premium hike for third party motor insurance (liability only cover).

While the regulator had initially proposed to hike premium rates for private cars and two-wheelers by 26 to 137 per cent in its draft circular, the regulator finally lowered the proposed increase to 9 to 20 per cent in its final circular released on Thursday.

The new rates will be effective from April 1.

The regulator also raised rates for commercial vehicles such as goods-carriers , the most vocal and organised segment, by 10 to 13 per cent, which insurers feel is inadequate. 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.

“Looking into the sudden and adverse impact on the policyholders of such an increase in rates and considering comments on the exposure draft, the Authority decided to moderate the rate increase…,” the insurance regulator said in a circular.

Re-look 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 as the rates are fixed by the insurance regulator.

The claim ratios in third-party motor insurance are around 140 per cent (for every ₹100 collected as premium, the insurer pays out ₹140).

So, due to the high claims from commercial vehicles, insurance companies provide them cover from a common declined pool and not from their own books.

Higher increase General insurers had asked the insurance regulator for at least a 50 to 60 per cent premium increase in third party premium rates to compensate for the high losses in the portfolio.

“The numbers which have come out are not commensurate with the experience that we have in the market. So, we will go back to the regulator to look into it,” said KK Mishra, MD and CEO of TATA AIG General Insurance.

Last year, third-party motor insurance rates had gone up by an average 18-20 per cent after transporters opposed the 60 per cent hike demanded by the insurers.

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