IRDAI proposes a hike in 3rd party car insurance premium: Check details

The new car and two-wheeler owner have two options, either to go for a Multi-Year Long Term Comprehensive Policy or else a Bundled Policy.

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Your motor insurance cover is set to cost more as the Insurance Regulatory Authority of India (IRDAI) has floated an exposure draft on revision in premium rates for motor third party insurance cover for the financial year 2019-20. Generally, just before the start of the new financial year, IRDAI releases the revised 3rd party tariff for the motor insurance industry.

“With respect to recent draft exposure by IRDAI, one may see an increase in TP insurance premium by close to 15%. It should not have a major impact on sales, however, we should see a surgency towards insurance purchase before the final mandate,” says Tarun Mathur, Chief Business Officer- General Insurance,

In a motor insurance policy, there are two major components — Third-party Insurance (TP) and Own Damage (OD) Insurance. As per the Motor Vehicles Act, 1988, it is mandatory to insure one’s vehicle with a TP insurance cover, the premium of which is set by IRDAI every year.

Earlier in March 2019, in a big relief to the motor insurance holders, the IRDAI had 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 ( FY 2018-19) of premium for Motor Third Party Liability Insurance from April 1, 2019, i.e for FY 2019-20.

Sanjay Seth, Executive Vice President, IFFCO Tokio General Insurance Company, said, “Keeping in line with the prudent underwriting norms, premium rates have to match with claim experience of the industry. Currently, this is not happening in the Third Party (TP) motor insurance segment, especially when claims are going haywire.”

The new exposure draft released in May 2019 has the following important proposals:

In order to provide an incentive to use environment friendly vehicles, a discount of 15 per cent, on Motor TP premium rates for Electric Private Cars and Electric Two wheelers, is proposed.

The TP rates will be in two categories – Category I – For older vehicles which have registration date earlier than September 1, 2018 and Category II -The new vehicles whose registration date falls on September 1 and later.

Category I 

These are the proposed revised rates (cars and two-wheelers with registration date earlier than September 1, 2018)

Existing TP Rates for cars (FY 2018-19)
Not exceeding 1000 cc – Rs 1,850
Exceeding 1000 cc but not exceeding – 1500 cc – Rs 2,863
Exceeding 1500 cc – Rs 7,890

Proposed TP Rates for cars (FY 2019-20)
Not exceeding 1000 cc – Rs 2,120
Exceeding 1000 cc but not exceeding – 1500 cc – Rs 3,300
Exceeding 1500 cc – Rs 7,890

TP for two-wheelers – Existing and New rates

The TP premium for two-wheelers ‘Not exceeding 75 cc’ is proposed to be Rs 482, up from Rs 427, while for two-wheelers ‘Exceeding 75 cc but not exceeding 150 cc’, the new rate is proposed to be Rs 752 as against the existing rate of Rs 720. Similarly, for two-wheelers ‘Exceeding 150 cc but not exceeding 350 cc’, the new rate is proposed to be Rs 1,193 as against the existing rate of Rs 985. For super bikes ‘Exceeding 350 cc’, the rates are proposed to remains stagnant at Rs 2,323.

Category II

For the vehicles whose registration date is on or later than September 1, 2018, the long term premium rates have been proposed not to be changed for both cars and two-wheelers.

Long term policies

Effective September 1, 2018 (registration date) the nature of insurance policies have gone long term. For new cars and two-wheelers purchased after that date, the third-party premium has to be paid upfront for 5 years. However, owners of cars and two-wheelers purchased before that date may continue to pay as it is. Remember, its only the  TP premium, which as it is fixed by IRDAI based on the capacity of the vehicle, is to be paid upfront. The own-damage (OD) premium may still be paid on an annual basis.

Now, the new cars and two-wheeler owner have two options – Either to go for a Multi-Year Long Term Comprehensive Policy Or else a Bundled Policy. Under a  Long Term, Comprehensive Policy both TP and OD coverage is for 5 years. Here the premium is also collected for 5 years and policy renewal will come into question only after 5 years when the policy is about to expire.

But, what if one wants to pay OD premium only for one year and renew it the next year onwards? In that case, one can opt for a Bundled Policy in which the TP coverage is for 5 years but OD coverage will be for one year. The OD premium has to be paid every year while TP premium gets paid once in 5 years.

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