Private car owners may have to pay up to 137% higher premium for third-party insurance from the next financial year.
An Insurance Regulatory and Development Authority (IRDA) exposure draft has proposed 25-137% increase in the third-party insurance premium for private cars from April 2014.
The hike proposed is highest (137%) for cars with engine power less than 1,000 cc. For cars with engine power between 1,000 cc and 1,500 cc, the increase in premium proposed is 50%, while for those above 1,500 cc the increase proposed is 25%.
For the two-wheeler category, the proposed premium hike for bikes with less than 75 cc engine power is highest at 45%, while that for two-wheelers with 100-150 cc engine power is 13%. Those riding highpower bikes with engine power 350 cc or more would see their premium come down drastically by 62%.
The hike has been proposed amid growing third-party losses, and rising death claims. According to the IRDA, the average death claim under third-party motor insurance has grown from Rs 2.1 lakh in 2007-08 to Rs 3.9 lakh in 2012-13, a jump of 85% in the last 5 years. The average loss ratio in third-party motor business is 140%, which means against Rs 100 premium, insurers paid Rs 140 in claims.
"Third-party losses have always put insurers in dire situations when it came to assess their profitability. With every passing year, insurers are facing huge quantum of losses in this category. Hence, it is inevitable to consider the revision of premiums in this segment," says Dr Sandeep Dadia, CEO and Principal Officer, Aditya Birla Insurance Brokers.
Motor insurance has two components-third party, which covers losses to a third party (other than the owner of the insured car) in case of an accident involving an insured car, and own damage, which covers the insured vehicle against damage and theft. Third-party insurance is mandatory by law. The premium for third-party insurance is decided by the government.
"De-tariffing of the third-party premium is necessary so that good customers get the benefits. The current tariff regime is cross-subsidising the bad customers with uniform pricing for both good and bad customers," says Dr Amarnath Ananthanarayanan, MD and CEO, Bharti AXA General Insurance.