In a decision that will hurt auto owners in the commercial vehicle (CV) segment, domestic general insurers have finally taken the initiative to increase premiums for third party motor insurance by almost 80%.

General Insurance Council (GIC), the official representative body of the domestic general insurers, met in Hyderabad on Friday and passed an resolution to this effect.

?We have decided to initiate the process to hike third party motor insurance rates by 80% since losses from the portfolio are no longer sustainable,? said the chief of a public sector general insurance company. Over 50% of the premiums of general insurers come from motor insurance.

The third party insurance covers the risks of financial losses arising out of a situation where a vehicle damages a third party in an accident. In India, third party motor insurance has a provision for unlimited liability and many cases end up in prolonged litigation with courts awarding large financial compensations to victims.

Third party motor premiums account for the largest share of revenues of general insurers. However, the business makes big losses too with the loss ratio for the portfolio exceeding 120-130% every year. It is legally mandatory for vehicle owners to buy this cover and this is the only segment where the premium is still regulated and needs to be ratified by the government.

General insurers claim they are at the receiving end while selling third party insurance covers. Since the cover is mandatory, they have to sell them even if the portfolio incurs losses, eating into the profits of other segments.

In order to simplify the third party motor insurance business, insurance companies had created a mechanism in April 2007 wherein all insurers would transfer their premiums collected to the Indian Motor Third Party Insurance Pool.

General Insurance Corporation of India is the pool administrator and claims that are paid out of the pool depend on each insurance company?s market share.

During 2008-09, 17 members of IMTPIP had contributed Rs 2,822.96 crore of premium to the pool, which had paid Rs 3,258.54 crore towards claims, thereby taking a hit of Rs 650.30 crore.

A proposal by insurance companies to increase third party motor premiums by 150% in January 2007 was met with stiff resistance from the All India Motor Transport Congress (AIMTC), which has over 3,400 affiliate associations and members owing over 4.5 million vehicles. Finally, the government had to relent, allowing a 70% hike.