Third party motor insurance premium rates are likely to go up at least 40 per cent as the regulator has steeply hiked the money general insurance companies need to set aside for meeting the high claims in this line of business.
Last week, in a notification to general insurers, the Insurance Regulatory and Development Authority increased the provisioning to 210 per cent of claims from 140 per cent now.
The hike in provisioning will add to the burden of general insurers as third party motor insurance is a bleeding portfolio for them due to high claims from commercial vehicles. The premiums are fixed by the regulator.
Due to the claims ratio exceeding 150 per cent, the IRDA, in an exposure draft, proposed a 60 per cent hike in third party premium for FY13. However, due to strong opposition from different stakeholders, including transporters associations, the regulator moderated the hike to 20 per cent.
According to IRDA Chairman T. S. Vijayan, the steep hike was recommended by an actuarial committee for the declined risk pool.
Under the Indian Motor Vehicles Act, all vehicles plying must have third party insurance cover ( covering third-party damage in terms of property or life). However, due to the high claims ratio from commercial vehicles, insurance companies provide them cover from the declined pool and not from their own books.
Currently, the size of the declined risk pool is around Rs 210 crore.
R. Chandrasekaran, Secretary, General Insurance Council, said that the steep increase in provisioning is a clear indication that the premium rates at current levels are inadequate.
“On behalf of the industry, we will make a representation to hike the premium for third party motor insurance to appropriate levels to cover the shortfall,” Chandrasekaran said.
“The profitability of domestic general insurance companies has already been impacted. We have been able to increase the premium only by 20 per cent but we have been asked to provide more than 200 per cent,” said K. K. Mishra, Chief Executive Officer of Tata AIG General Insurance.
According to K.G. Krishnamoorthy Rao, Managing Director and CEO of Future Generali India Insurance, the general insurance industry would have to provide around Rs 450 crore towards additional capital. The hike in provisioning is also likely to impact the solvency ratio of some insurers who may be required to infuse additional capital, he added.