Third-party motor cover may cost more from April

Mumbai: Insurance companies expect the cost of third-party (TP) motor cover to increase 15-20% from April 1, as the industry struggles with mounting claims and stagnant rates over the past five years. Industry CEOs said the hike is necessary to offset rising claims costs, with TP award inflation running at nearly 11-12% annually, eroding profitability amid average premium increases of just 2-3% per year over the past 5-7 years.

“If the industry has to reach a viable level on an accident-year basis for motor TP, a substantial hike is needed,” said the CEO of a large insurance company, who did not wish to be identified. “Our expectation is a 20% increase.” The Insurance Regulatory and Development Authority of India (Irdai) revises third-party motor insurance rates annually based on past claims, in coordination with the ministry of road transport and highways.

Between FY13 and FY18, TP insurance rates saw sharp hikes, but regulators largely froze increases over the past seven years, capping hikes at 2-3% between FY19 and FY25. With net claims ratios for motor TP at 82% in both FY24 and FY23, and ultimate ratios at 88% and 91%, respectively, the industry is pushing for correction. ICICI Lombard‘s managing director and CEO Sanjeev Mantri recently said in an investor call that the industry could see a hike in the next financial year.

New India Assurance saw its incurred claim ratio rise to 102% in the third quarter of this fiscal, up from 93% a year ago. Similarly, Go Digit’s loss ratio increased to 65% from 61%. In contrast, motor own-damage (OD) cover, particularly for new private cars, continues to show lower loss ratios.

Third-party insurance premiums vary by engine size. For small cars up to 1,000 cc, the renewal premium is ₹2,100 which is expected to go up to ₹2,500. Similarly, mid-sized cars (1,000-1,500 cc) have a renewal premium of ₹3,400 could see premium rise to ₹4,000.

Under the Motor Vehicles Act, 1988, third-party insurance is mandatory, covering financial liabilities if a vehicle causes injury, disability or death. The Irdai has mandated insurers underwrite at least a certain number of goods-carrying vehicles, PVs and tractors to expand insurance coverage in rural and underserved markets.