Proposed TP motor insurance premium rate hike not sufficient: Shanai Ghosh

The proposed hike in third party (TP) motor insurance premium rates is not in tune with the market reality and additional ground intelligence should be used while finalising the premium rates, said Shanai Ghosh, Chief Executive Officer, Edelweiss General Insurance.

The Insurance Regulatory and Development Authority of India (IRDAI) in its draft notification has proposed a substantial increase in long term 2-wheeler TP rates, whereas nominal increases have been proposed in private car and commercial vehicle rates. Additionally, a 15 per cent discount is proposed in electric bikes and cars and there’s a 7.5 per cent discount in hybrid vehicles.

“The last two years has not been a representative period to judge the price increase because of COVID. This is because cars were driving less but courts were in operation. So whatever little awards or judgments that we have received have shown a huge escalation also for the motor vehicles the minimum thresholds have been placed. So, there is a dire need to actually revisit the pricing. The draft the industry feels is not giving a commensurate rise because they are looking at the experience of the last few years which is not representative at all. The inflation and the increase in claims will be much higher than envisaged in the draft price increase,” said Ghosh.

Motor insurance premium rates consist of two parts-own damage and third-party rates. While one's own damage covers the insured car, third party insurance provides coverage against third-party liabilities. In India it is compulsory to buy a third-party motor insurance policy.

After two years due to COVID-19 pandemic, the revised TP insurance premium will come into effect from April 1. Earlier, TP rates were notified by IRDAI but from this time the road transport ministry will notify the TP rates in consultation with the regulator. According to the proposed revised rates, private cars with 1,000 cubic capacity (cc) will have a premium of Rs 2,094 as compared to Rs 2,072 in 2019-20. Similarly, private cars with 1,000 cc to 1,500cc will have premium rates of Rs 3,416 compared to Rs 3,221. For cars above 1,500cc a premium of Rs 7,897 will be charged. Two-wheelers over 150cc but not exceeding 350cc will attract a premium of Rs 1,366 and for two-wheelers over 350cc the revised premium will be Rs 2,804.

Insurers complain that while the motor third party premium rates have remained unchanged for the last few years, the award size has increased over the years.

“It’s been years that the Motor Third Party premium rates have remained unchanged, while the award size has been increasing owing to various judgements. However, this is just a draft and we need to wait for the final circular to analyse the impact of the same,” said TA Ramalingam, Chief Technical Officer, Bajaj Allianz General Insurance.

The industry states that the TPA premium rates proposed for this financial year are based on the claim experience of the last two years which is not representative of the current losses and therefore additional market intelligence needs to be applied.

“The process of proposing price increase is based on actuarial calculations. So, actually calculations will look at past experience and we'll look at the data that has been received. So, those calculations are correct, but what we are trying to say is that calculations back there in the last two years of experience is not representative and therefore underestimates the requirement or the need or the quantum of price increasing. We will have to apply some additional market intelligence on what is the kind of awards that are being given out, and how the minimum thresholds have been increased. The duration of claim settlement is coming down, which is good for the customer. But for the insurers’ finances it means that the income is also going to come down. So, it is going to be detrimental to the financial health of the insurer. And therefore, we have to apply some additional ground intelligence to decide the rates and not just look at the past experience,” said Ghosh.

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