In a big relief to the motor insurance holders, the Insurance Regulatory Authority of India (IRDAI) has put the expected increase in annual premium for Third Party (TP) policies on hold until further orders. As per the IRDAI circular, the insurance regulator made it clear that the insurers will continue to charge the current rate of premium for Motor Third Party Liability Insurance from April 1, 2019. However, it was expected that IRDAI would increase the TP premium by 20-30% going by the last 6 years’ trend. A detailed analysis of increments that happened over last 6 years showed that the Third Party premiums increased by 29% for car and 23% for two-wheelers on an average.
Reviewing and updating the Third Party premium rates for different vehicles every year is a regular practice of IRDAI. Every year, the regulator decides the Third Party insurance premium that remains the same across all the insurers. The premium is evaluated considering the annual claims data of all insurers across different cubic/engine capacity of the vehicle. Under a motor insurance policy, there are two major components, Third-party Insurance and Own Damage Insurance. As per The Motor Vehicles Act, 1988, it is mandatory to insure your vehicle with at least Third-party insurance cover.
Third-party insurance insures the first party or the vehicle owner against damages caused by the vehicle to third parties. Third parties may include pedestrians, other vehicles, or even someone’s property. TP insurance protects the insured from any legal liability arising due to damages caused to the third parties during a road accident.
Last year as well, the TP premiums for motor insurance remained unchanged as per the IRDAI orders. However, in August, 2019, the honourable Supreme Court of India mandated long-term TP motor insurance of 3 years for cars and five years for two-wheelers that led to increase in the premium by 2-5 times. Following the circular, all the general insurance companies were directed to start offering multi-year third-party insurance policies for all new two-wheelers and cars. However, it is completely on the insurer to deal with comprehensive insurance policies on a different basis, giving policy seekers the prerogative of buying a policy (OD) of their choice.
The cost of premium for the third party insurance is categorised on the basis of vehicle type and engine capacity. While the premium for vehicles with lesser engine capacity is kept on the lower side, the premium for high engine capacity vehicles is kept on the higher side.
Below is the TP insurance premium of cars for the last 7 years.
Below is the TP insurance premium of Two-Wheelers for the last 7 years.
(By Sajja Praveen Chowdary, Head- Motor Insurance, Policybazaar.com)