Motor insurers are bracing for higher underwriting losses following two recent Supreme Court rulings that extend the mandatory tenure of motor third party (TP) insurance for new private vehicles and increase compensation payouts by recognising the economic value of homemakers’ unpaid work.
Insurers, however, say the longer TP cover is unlikely to significantly improve road safety or compensation outcomes, as commercial vehicles — the segment with the highest uninsured rates and third-party claims — remain outside the mandate.
Commercial Vehicle Exclusion
“Commercial vehicles account for more than 50% of all third-party claims, yet they sit entirely outside this mandate,” Animesh Das, Managing Director and CEO of ACKO General Insurance, said.
The Supreme Court on Tuesday directed the insurance regulator to increase the mandatory motor TP insurance tenure for new passenger cars to four years from three years now. For two-wheelers, it has been extended to six years from five.
“The intention is very good but keeping commercial vehicles away from the equation has missed the whole point of this ruling,” says the chief executive of a private general insurer.
According to industry watchers, the non-compliance is much higher among older trucks, three-wheelers and tractors — the uninsured rate for tractors is estimated at 80-85%. By contrast, passenger cars have lower uninsured ratio at around 25%.
Das said extending the mandatory tenure will not solve the underlying problem as insurance adoption is not driven by longer lock-in periods. “It’s built through affordable pricing, honest commission structures, and genuine awareness.”
According to ACKO, renewal compliance among two-wheelers after the existing five-year mandatory policy drops sharply, with only around 21% renewing in the sixth year. “Extending tenure further doesn’t fix that drop-off. It simply pushes it deeper into a vehicle’s life, at a point where compliance is even lower on older vehicles that are harder to track and less likely to renew,” Das noted.
Stagnant Premiums
A senior executive at a private general insurance company said increasing the tenure of motor insurance policies without a meaningful revision in third party premium rates would only worsen insurers’ loss ratios. The non-life insurance industry has been under pressure as the government has not revised Motor TP premium rates for the fourth consecutive year.
The financial impact is already visible. New India Assurance, the country’s largest general insurer, reported an underwriting loss of ₹1,297.17 crore in the Motor TP segment in Q1FY27, compared with ₹824.58 crore a year earlier.
“The Motor Third Party line of business continued to be under pressure as there was no premium increase and the claim inflation pressure is continuing,” said Girija Subramanian, CMD, New India Assurance.
The industry’s concerns have also been compounded by another SC judgment last month, recognising the economic value of unpaid domestic work performed by homemakers while determining compensation under the Motor Vehicles Act.
The judgment provides for compensation under a distinct head, ‘Loss of Domestic Care’ based on a monthly income of ₹30,000, with periodic increases to reflect inflation and socio-economic changes. “Based on a preliminary assessment of the impact of this judgement, the Motor TP loss ratio of the industry is expected to increase in the range of 12% to 15%,” said Sanjeev Mantri, MD and CEO, ICICI Lombard.
Das said the longer mandatory tenure also creates pricing challenges for insurers. “No insurer anywhere in the world prices motor risk six years into the future. That isn’t underwriting, it’s a guess, and it’s the customer who eventually pays for that guess through higher premiums.”