IRDAI Increases Third-Party Insurance Premium Rates in 2016


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A third-party insurance policy protects policy holders from liabilities that may arise in the event of an accident leading to the damage of a vehicle, injury or even a death. Usually, the third party motor insurance is a part of the main policy. Some insurers offer this as a standalone cover as well. In India, third-party insurance is an essential requirement for every car owner buying an insurance cover. Under Motor Vehicles Act 1988, third party liability cover has been made mandatory in India.

About Third-Party Motor Insurance

A third-party vehicle insurance can be defined as the policyholder’s insurance against disability, death or damage caused to a third-party, in case of an accident. At times, this third-party insurance is also called the “Act Only” cover as it applies to a third person involved in an accident, instead of the vehicle owner or the insurer.

Effective from 1st April, 2016, IRDAI (Insurance Regulatory and Development Authority of India) has increased the third-party motor premiums. The new rates indicate a 40% rise in the car insurance premiums and a 25% hike in two wheeler insurance premiums. The third-party rates for commercial vehicles will increase by 5% to 30%. In case of loss of a life, the coverage is unlimited. In the event of damages to a property, the maximum coverage provided is 7.5 lakhs. Third party insurance will not cover the losses which are incurred on insured’s own property.

Third-Party Insurance Premium Rates Raised

A motor insurance can be categorized into two basic components – comprehensive cover and third-party insurance. Premium on the comprehensive cover is determined by the auto insurance companies, whereas premium on third party cover is decided and fixed by IRDAI. The third party insurance premiums are reviewed by IRDA annually and revised based on the cost inflation and the claim statistics.

In the last 5 years, IRDA has increased the insurance premium, every year. Keeping in view the large losses faced by insurance companies and a rise in cost inflation index by 5.57%, IRDAI has decided to hike the premium rates for third party insurance, this year, as well for all segments of two-wheelers and cars. While ascertaining the need to hike rates, IRDAI has referred to the Insurance Information Bureau. An additional factor that led to the increase in premium rates is the rise in service tax owing to additional cess.

An Overview on New Third-Party Insurance Premium Rates

Let’s take a look at the latest third-party premium rates as laid down by the IRDA:

Cars Old Premium Premium for 2016-17 % Increase
Upto 1000 cc Rs. 1468 Rs.2055 40%
1000cc to 15000cc Rs. 1598 Rs.2,237 40%
1500cc and above Rs. 4931 Rs. 6,164 40%
Two-Wheelers Premium for 2016-17
Upto 75cc Rs.569
75cc-150cc Rs.619
150cc-350cc Rs.693
350cc and above Rs.796

It is important to note that rates have also been increased for three-wheelers. Although the hike is steep from the policy holder’s point of view, it isn’t that steep from the perspective of insurance companies. It has been estimated that an 80% hike in the premium rates would be required to effectively combat the losses faced by insurers.

Insurers have been warned by IRDA against refusing any third-party claims. All insurers are now required to offer third-party covers online to make it easy for vehicle owners to easily compare insurance quotes online and buy one with comprehensive third-party covers.

Incurred Claim Ratio Decreases over the Years

IRDAI data reveals that an increase in third-party insurance premiums in the last few years has offered some respite to insurers in the motor insurance category. The increase in tariff has helped insurers limit their loss ratio to some extent.

The incurred claim ratio for the motor insurance segment was 77% in financial year 2014-15 as compared to 80% in financial year 2013-14. The incurred claim ratio can be defined as the ratio of net incurred claim to net premium. Or in simpler terms, it is the number of claims received for the premiums paid. A lower incurred claim ratio indicates healthy growth and higher profitability for the insurer.

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