The Ritual of Hiking Third Party Motor Insurance Premiums!

More often than not the Insurance Regulatory and Development Authority (IRDA) tends to forget its regulatory role, assuming only its development role, to the detriment of hapless customers who are forced to bear the brunt of ever rising vehicle insurance premiums.

What else explains the steep hike proposed in third party vehicle insurance premium rates for 2022-23, that too at a time when non-life insurers are raking in crores of rupees as premium and paying far less as settlement of claims. 

Early this month, the ministry of road transport and highways issued a draft notification for revising the premium for third party motor insurance, including those for taxi, truck and bus segments

However, there is a slight dip in the premium to be paid by two-wheeler and private car owners. The government has also proposed discount of 15 per cent in the insurance premiums for electric vehicles and 7.5 per cent for hybrid electric vehicles.

As per the proposed rates, owners of two-wheelers with cubic capacity (cc) between 75cc and 150cc will pay lower a rate at Rs714 per year (Rs752). However, there is a hike in the case of other classes of two-wheelers.

However, in the case of new vehicles where third party cover is provided for three years in case of private cars and five years in the case of two-wheelers, the rates have been hiked for all classes.

Third Party Insurance Premium for the Financial Year 2022-23

The Insurance Regulatory and Development Authority of India (IRDAI) by its order dated 27 March 2020 had extended the validity of the premium rates issued through an earlier order dated 4 June 2019. In other words, the rates were not revised for FY 2020-21 and FY 2021-22, and the rates laid down for FY 2019-20 were continued. 

According to the draft notification, the recommended Motor Third Party Premium rates for the FY 2022-23 for various categories/sub-categories of vehicles have been arrived at as follows:

The ministry has used the data provided by the Insurance Information Bureau of India (IIBI) for arriving at the Motor TP premium rates. The claims paid data in respect of each of the accident years starting from the year 2011-12 up to 2020-21 has been considered, taking into account the combination of ‘Class Code’ and ‘Vehicle CC/PCC/GVW' Code. It has also taken into consideration Gross Written Premiums for the FYs 2011-12 to 2020-21.

The ministry said paid claims data have been considered for construction of cumulative paid claims triangle for each homogenous subclass with Accident Year (AY) as origin year and Financial Year (FY) as development year.

In order to arrive at the premium rates, the ultimate claims cost of respective segment for each accident year has been estimated using the actuarial technique of Basic Chain Ladder Method.

As for the Vintage Cars segment, there is no substantial data relating to the past experience. A discounted price of 50 per cent of the proposed rate based on the erstwhile Indian Motor Tariff (IMT) has been proposed for those private cars identified as Vintage Cars by the Vintage and Classic Car Club of India. A discount of 15 per cent is proposed for Electric Private Cars, Electric Two Wheelers, Electric Goods carrying Commercial Vehicles and Electric Passenger carrying Vehicles. The proposed discount will incentivise usage of environmental friendly vehicles. 

(The rates for the Electric Vehicles are given in Tables V, VI, VII & VIII of Annexure A.)

A discount of 7.5 per cent on Motor TP premium rates for Hybrid Electric Vehicles is proposed. This will be an incentive to use environment friendly vehicles.

It may be noted that the following new categories of vehicles, which have newly come into the market, have been introduced in the rating schedule subsequent to the financial year 2018-19:

a. Electric private cars and Electric two wheelers -introduced in the financial year 2019-20.

b. Quadricycles -introduced in the financial year 2019-20. 

c. Electric Goods carrying Commercial vehicles and Electric Passenger carrying vehicles-proposed in the financial year 2020-21 but not published.

d. Hybrid Electric vehicles-proposed in the financial year 2020-21 but not published.

The hike in insurance premium rates is no reflection of any increase in the provision made against claims as this does not in any way increase the actual claims pay out. The only justification for the hike is the formula-based premium increase and the false claims made by the general insurers that they are incurring huge losses under the motor portfolio.

In reality, the number of actual claims payouts are declining as reflected in the Insurance Information Bureau of India (IIB) figures and studies by industry lobby General Insurance Council.

Vehicle insurance policies have two parts - own damage (insurance for the vehicle against damage, theft) and third party liability (liability for third parties). The third party insurance cover is mandatory whereas the insurance cover for vehicle damage is not mandatory and the rates are administered.

As per the Indian Non-Life Industry Year Book 2019-20 published by the General Insurance Council, the total motor insurance premium earned by the industry for 2019-20 was Rs68,951 crore.

Against this, the total claims paid for 2019-20 was Rs38,071 crore, which includes Rs20,552 crore towards damage to vehicle and Rs17,519 crore third party liability at.

The gross surplus was a whopping Rs30,880 crore.

The total number of third party claims settled was 403,283 with an average pay out of Rs 434,409.

In its annual report on motor insurance for the 2018-19 fiscal, the IIB said a sum of Rs35,519 crore of motor claims - Rs18,262 crore towards vehicle damage and Rs14,257 crore in third party liability - were settled during 2018-19, while the gross underwritten premium was Rs64,522.35 crore.

According to the report, the average settlement amount for death claims during 2018-19 fiscal was Rs9,01,207 while for injury claims it was Rs2,51,094.

The industry players also complain that a large number of vehicles run on the roads without third party insurance, although they are least affected as they pay claims only on those policies issued by them and it is for the police to penalise the violators.