The insurance regulator has hiked the third-party motor premium rate from April 1. Private cars with engine capacities up to 1,000cc would see a steep hike of 40% and those over 1500 cc will see a 25% hike. Even the third-party rates of commercial vehicles will increase in the range of 5% to 30% and the hike for two-wheelers would range from 10% to 25% depending on the engine capacity. The hike in April by the Insurance Regulatory and Development Authority of India (Irdai) will be the sixth in six years as the regulator revises the mandatory cover rate every year after factoring in the inflation.
The cost inflation index has increased by 5.57% in FY16 to 1081 from 1024 in FY14. The regulator has underlined that insurers cannot cancel the current insurance policies and issue fresh policies to effect new premium rates. Insurers will have to ensure that the third-party motor insurance is made available at their underwriting offices. Motor insurance comprises own-damage and third-party insurance.
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 the number of policies, number of claims reported and the 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 the deceased, as well as his 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 R7.5 lakh.
The motor insurance portfolio for non-life insurance companies has been bleeding for many years now and past hikes have enabled the 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 of 79.5%. Apart from hike in the rates, insurers want a cap on liability and a certain time period within which a claim can be filed. However, in the current scenario, 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 third-party motor 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.