Motor insurance premium for third party liability cover hiked

From next week, you will have to pay more for third party liability cover for your vehicle.

The Insurance Regulatory and Development Authority (IRDA) has hiked motor insurance premiums for third party liability cover for various classes of vehicles with effect from April 25, 2011.

For instance, if you drive a car not exceeding 1000 cc, the third party liability premium has been hiked from the existing Rs 640 to Rs 740 — a 10.44 per cent increase.

The hike ranges from10 per cent to about 70 per cent for various categories of vehicles.

“Premiums need to be reviewed regularly depending upon the average claims which have been awarded by the various courts, frequency of claims for each class of vehicle and inflation, amongst other factors,” Mr J. Hari Narayan, Chairman, IRDA, said in a circular issued on Saturday.

Till now, motor third party premiums were revised at four/five-year intervals. “Such long intervals between rate revisions cast an avoidable strain both on policyholders and insurance companies,” the IRDA chief said.

The premiums will now on be reviewed and adjusted annually with the aid of a specific formula taking into consideration the average claims cost for each class of vehicle, frequency of claims for each class of vehicle and cost inflation index for the year of review.

RATES, AVAILABILITY

The insurers were also directed by the IRDA to be “mindful” of the concerns expressed by vehicle owners about both the rates and availability of insurance.

Considering the mandatory nature of Motor Third Party Insurance, insurers were told to ensure that the insurance is made available at their underwriting offices.

The requests for insurance should be processed expeditiously with prompt issue of policies, Mr Hari Narayan said.

“Insurers are not permitted to cancel the current insurance policies and issue fresh policies to effect new premium rates,” he added.

The IRDA had taken up review of premiums as the third party insurance portfolio for commercial vehicles has been consistently making loss.

Insurance companies are running the portfolio at a loss. The insurance premium represented less than one per cent of the operating costs of transporters, as per IRDA data.

Not adequate

Top insurance officials wanted at least an 80 per cent hike. Even this they felt is inadequate. Mr M. Ramdoss, Chairman and Managing Director, New India Assurance, told Business Line that a minimum hike of 80 per cent on premium of trucks is required.

The hike is to absorb the losses on account of claims of third party on motor accidents, he said. Public insurers have to bear a greater share of third party losses because they insure 60 per cent of the market.

Motor pool, a corpus of premiums transferred from insurers, was created to absorb losses from this segment. This pool is currently running at a deficit. This has made the insurance regulator hike the premium rates. In another move it mandated insurance players to make a provisioning of Rs 3,500 crore for the last four years to bear the losses.

Third party motor insurance is mandatory for all classes of vehicles. Though regulation of the tariffs in the non-life sector was withdrawn in 2007, third party motor insurance continues to be regulated.

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