Insurers in the third-party (TP) motor segment may have to provision Rs 6,500 crore more to comply with insurance regulator IRDA’s directive, a CRISIL report on Wednesday said.

“We estimate the additional provisioning at Rs 65 billion this time, which is more than twice the provisioning increase that followed IRDA’s rate hike of March 2011,” said Rupali Shanker, Director of CRISIL Ratings.

Insurance Regulatory and Development Authority (IRDA) has increased the provisioning requirements in the third party motor pool recently.

The report said that the additional provisioning in the motor TP pool coupled with high claims in the motor TP (third party) and health insurance would impact the underwriting performance in the interim.

“We expect the industry’s overall underwriting losses to exceed Rs 100 billion each in 2011—12 and 2012—13,” Shanker said.

“CRISIL expects the annual hike in premium rates for the motor TP (third party) segment to benefit the industry over the long term. Consequently, the underwriting losses in motor TP segment, which has the most adverse claims performance likely to reduce over time,” the report added.

Motor TP, which accounts for about one third of the industry’s total claims, has been hiked by five to eight percent for private vehicles and 10-30 per cent for commercial vehicles from April, 2012. This was done by the regulator in a bid to meet the rising claims in this segment.

“We believe the annual hike for the motor TP segment is a positive step, and will help check the industry’s mounting underwriting losses in this segment. While the current level of premium rate hike is inadequate to completely offset the significant losses in motor TP, we believe that underwriting losses in this segment will reduce over the long term on the back of IRDA’s annual premium rate hike,” Senior Director, CRISIL Ratings, Mr Nagarajan Narasimhan said.

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