The premium for motor insurance is set to rise as the Insurance Regulatory and Development Authority of India (Irdai) has proposed revision in rates for mandatory third-party cover. For private cars, the proposed increase is around 15% for engine capacity up to 1500 cc and for two-wheelers, the hike is 4 to 21%.
In order to incentivise use of environment-friendly vehicles, it has proposed a discount of 15% on the motor third-party premium for all electric private cars and electric two-wheelers. For private cars with engine below 1000 cc, the third-party motor insurance premium is likely to increase to `2,120 from the existing `1,850. For private cars with engine capacity of 1000-1500 cc, it is likely to go up to `3,300 from `2,863.
However, there will be no change in the premium rate for private cars above 1500 cc. For two-wheelers up to 75 cc, it has proposed to increase the rate to `482 from `427; for above 75-150cc to `752 from `720; for above 150- 350 cc to `1,193 from `985. There will be no changes in the rate for two-wheelers with engine capacity above 350 cc.
Since 2011, the rates for third-party insurance have been fixed every year by Irdai and notified in the last week of March. The rates become effective from April 1. But this year, in a circular issued on March 28, Irdai did not revise the rates. Now, it has come out with an exposure draft on revision in third-party rates and has sought comments from stakeholders on it by May 29.
How rates are fixed
To arrive at the new third-party motor premium, Irdai analysed the claims paid in each accident years and the gross written premiums from 2011-12 to 2017-18. The regulator estimated the ultimate claims cost for each accident by using the actuarial technique of Basic Chain Ladder Method applied to cumulative paid claims data.
The draft exposure explains that the selection of age-to-age factors (ATAFs) has been done after considering various averages of ATAFs like simple average of all years, volume weighted average, average of last three/five years and highest of all averages. The note underlines that the ultimate expected claims for various accident years are estimated by considering cumulative development factors and the latest cumulative paid amount for a particular year.
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Any vehicle that plys on the road needs mandatory third-party cover under the Motor Vehicles Act.
Long-term covers
The regulator has not proposed any changes in the long-term premium—three years for new cars and five years for new two wheelers. Long-term third-party insurance reduces the hassles of renewing the policy every year. Also, an increase in the number of insured vehicles could bring down the rates as the risk pool becomes larger.
Third-party liability
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. The Motor Vehicles (Amendment) Act has substantially increased compensation for accident victims. Considering the mandatory nature of third-party insurance, Irdai had asked insurers to ensure that the cover is made available at their underwriting offices and through all available channels of distribution.
The reported claims frequency is the highest for the goods carrying segment, followed by passenger vehicles and private cars.
Policyholders should look at a comprehensive cover which takes care of the own damage portion, especially loss or damage due to fire, explosion, accidents or while in transit by road or rail, and even burglary and theft. A comprehensive motor insurance cover comprises own-damage and third-