The insurance regulator has increased the mandatory third-party motor insurance premium rate for private cars by 20% and for two-wheelers by 10%. The rate for commercial vehicles has also been raised by 10-15% for certain categories, while for certain goods carriers, it has been reduced. The new rates became applicable with effect from April 1. This is fourth such hike in as many years.
Under the Motor Vehicles Act, any vehicle that plies on the road needs a third-party cover. Insurers have to ensure that such cover is available at their underwriting offices. To arrive at the new rates, Irda used data available with the Insurance Information Bureau for the underwriting years 2007-08 to 2012-13 for the number of policies, number of claims reported and the amount of claims paid up to March 31, 2013.
For goods-carrying private carriers, the regulator has reduced premiums in some cases, while for four-or-more-wheeled vehicles used for carrying passengers, it has decided not to tinker with the rates.
Third-party liability is decided on and awarded by the judiciary taking into account the age of deceased, earning capacity, wages, etc, which keep rising due to inflation and other factors. Based on these parameters, Irda put in place a formula last year to calculate the pricing annually.
In February, Irda issued an exposure draft for revision of premium rates for third-party insurance.
It said that while consumers conveyed their opposition to increasing the rates, general insurers said that the current rates were inadequate and a revision matching the ultimate liability levels was required.
The regulator also underlined that there was a wide variation in premium changes among various subclasses of vehicles.
As per the motor vehicles law, the third-party cover is unlimited in the case of an accident and the entire compensation has to be paid by the insurer. In case of a damage to property, the claim amount can be a maximum of R7.5 lakh. Moreover, litigation related to the claim amount can go on for years. An analysis done by Irda on the claim development pattern of goods and passenger vehicles shows that it takes nearly eight years for 99% of the claims to be filed.
Prior to 2007, premiums for all non-life sector were regulated by the Tariff Advisory Committee. While regulation of tariffs was withdrawn for other covers, it continued in the case of third-party motor insurance, which saw insurers suffering heavy losses. Irda estimates that the insurance premium represents less than 1% of transporters' operating costs.
The regulator has said that insurers cannot cancel current insurance
policies and issue fresh ones with new premium rates. They also have to ensure that motor third-party insurance is made available at their underwriting offices, applications are processed and policies issued promptly.