Get ready to pay more for your motor insurance. Insurers are planning to increase the premium for motor insurance policies after the Insurance Regulatory and Development Authority (Irda) recently asked general insurance companies to maintain a minimum reserve of 150% for compensating the victims of road accidents.
This means that for every Rs 100 premium, insurers will have to keep a minimum of Rs 150 in reserves to service the claims. The guideline came following the regulator's observation that losses incurred under the thirdparty motor insurance pool in the past three years was over 180% of the premium collected. Against this loss, the reserve maintained by general insurers was around 126%.
The general insurance industry feels that the new guideline would force them to increase the auto insurance premium. All registered general insurers are required to contribute in a common pool to service all third-party motor insurance business underwritten in respect of commercial vehicles.
There are two kinds of motor insurance policies - cover against damage to one's own vehicle (own-damage insurance) and third-party insurance which covers the insured person if he is sued or held legally liable for injuries or damage done to any other person. It is mandatory for vehicle owners to purchase third-party motor insurance.
The premium for these policies is decided by the government. Amarnath Ananthanarayanan, chief executive officer, Bharti AXA General Insurance, says that either the government should allow insurers to increase the premium for third-party motor insurance or they would have to increase the premium for own-damage insurance to compensate for the extra burden.
Irda has asked general insurers to increase the solvency ratio to 150% by 31 March 2014. They have been asked to maintain a solvency ratio of at least 130% by 31 March 2011. Solvency ratio of an insurer is the size of its capital relative to premium collected. It indicates how financially strong the company is to pay the claims of policyholders.
