From next month, the mandatory third-party motor premium will rise across most category of vehicles.
The hike for private cars with engine capacities below 1,000cc would be up to 30% and cars with engine capacities over 1,000cc would see a hike of about 25%. The hike for two-wheelers would be in the range of 10 to 25% and for commercial vehicles from 15 to 30%.
The proposed hike in April by Insurance Regulatory and Development Authority of India (Irdai) will the sixth one in six years as the regulator revises the mandatory-cover rate every year after factoring the inflation. The Motor business continued to be the largest non-life insurance segment with a share of over 44% and the segment reported growth rate of 10.5% in FY15, supported by the mandatory insurance requirement. Motor insurance comprises own-damage and third-party insurance. The final rates, however, will be put out by the regulator towards the end of this month as it has sought comments from stakeholders on the draft exposure by March 20.
The motor insurance portfolio for non-life insurance companies has been bleeding for many years now and past hikes have enabled insurers to cover some of the previous losses. The incurred claims ratio of the Motor segment decreased to 77.14% in FY15 from the previous year’s ratio 79.5%. Apart from hike in the rates, insurers want a cap on liability and certain time period within which a claim can be filed, unlike the current scenario where the claim amount in unlimited and one can file the claim any time after the accident.
To enable access to data relating to insurance status of motor vehicles for assisting road accident victims or claimants of motor third party insurance, the insurance regulator through the Insurance Information Bureau, has provided a web based facility. The facility provides the users the details of the vehicle, insurance status and address of the policy issuing office.
Any vehicle that plies on the road needs a third-party cover under the Motor Vehicles Act and insurers will have to ensure that the policy is available at their every underwriting offices. To arrive at the new third-party motor premium in April, Irdai had used data available with Insurance Information Bureau for the experience period of the underwriting years 2007-08 to 2014-15 for number of policies, number of claims reported and amount of claims paid up to March 31, 2015. The analysis made use of the combined data — all claims paid in respect of all causes of loss.
The ultimate claim costs for each underwriting year are estimated using Chain Ladder Method applied on cumulative paid claims data. Based on these parameters, the regulator had put in place a formula in 2011 to calculate the pricing annually.
Third-party liability is decided and awarded by the judiciary taking into account the age of deceased, earning capacity, wages, etc., which keep rising due to inflation and other factors. As per the motor vehicles law, the third-party cover is unlimited in the case of an accident and the entire compensation has to be paid by the insurer. In case of damage to property, the claim amount can be a maximum of Rs 7.5 lakh.
Prior to 2007, premiums for all non-life sector were regulated by the Tariff Advisory Committee. While regulation of tariffs was withdrawn, it continued in the case of third-party motor insurance, which saw insurers suffering heavy losses. In April 2012, the regulator placed third-party insurance under the declined risk insurance pool, which improved claims-management and resulted in more equitable pooling of losses among companies. Litigation related to the claim amount can go on for years. An analysis done by Irdai on the claim development pattern of goods vehicles and passenger vehicles shows that it takes eight years for 99% of the claims to be filed.
Data from Insurance Information Bureau of India show that private cars account for premiums greater than the rest of the segments combined. The own-damage rates are greater for private cars, when compared to the other segments and the premium rates are stable across the two-year period for private cars. The incurred loss ratios are greater for private cars, as compared with other segments. The reported claims frequency is the highest for goods carrying segment, followed by passenger carrying and private cars.