3rd party motor cover premium to rise from June 1
MUMBAI: The government has notified revised rates for motor third-party insurance with effect from June 1 based on a draft notification issued on March 21 this year. The final rates allow a 15% discount for educational institution buses compared to other passenger-carrying vehicles.
General insurance companies will have to scramble to update their system with the changes considering that the due date for the notification is less than a week away. Besides, those who have already paid for cover may have to cough up the difference in premium.
The revision in motor third-party rates was carried out annually by the regulator based on a formula which takes into account the increase in claim amounts. The regulator had decided to adopt the formula as Motor Accident Claims Tribunals were increasing awards in line with inflation.
With motor third-party rates not being revised for two years, the auto segment saw its share of a premium drop from 33% to around 30%. Meanwhile, health insurance, which was the second-largest segment, saw its share of premiums increase from 30% to 33%, becoming the largest line of business. Insurers are hopeful that with the revision in premium rates, motor insurance will increase its share.
This year, the revised rates were released by the Insurance Regulatory and Development Authority of India along with the road transport & highways ministry. The changes will result in premiums for cars going up by up to 23% and up to 35% for two-wheelers above 75cc. The highest increase in premium was for two-wheelers below 75cc where the premium increase was more than 175%.
According to a note on the proposed rates by ICICI Securities, while hikes in long-term third-party insurance rates are particularly higher on a standalone basis, the increase in renewal premiums is lower than cost inflation as well as the corresponding historical compounded annual growth rate.
“The proposed rates imply an average hike of 2% in renewal premium for private cars and 8% for two-wheelers. For long-term premiums, the corresponding hikes proposed are around 15% and 17% respectively. We view these proposed hikes as healthy,” ICICI Securities had said in a note following the draft notification.