Motor Insurance Combined Ratios

Motor Insurance Combined Ratios are Expected to Jump to 200% by FY 2015

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The premium hikes in motor insurance won't be enough to cover for combined ratio loss and other loss.

The reasonably high number of claims and stunted growth in the third party segment would make the combined ratio for motor insurance to increase to as high as 200 per cent by the end of March 31, 2015. In fact the overall increase in motor cover prices won't be enough to compensate for the underwriting losses and higher combined ratio. A combined ratio below 100 per cent shows an insurer is profitable.

This ratio is the sum of incurred losses and operating expenses, measured as a percentage of the earned premium. It is a measurement of profitability

The Insurance Regulatory and Development Authority (Irda) had just decided to impose a limit of 9-20 per cent on the third-party premium hike in motor insurance, against the proposed hikes of 20-137 per cent.

As per Irda's directives, the private cars category will be experiencing motor TP (third Party) hike of 19 -20 per cent across different categories - below 1,000cc (Alto, Nano), 1,000-1,500cc and exceeding 1,500cc. Similarly, in the two-wheelers category, premiums in TP segment have been raised only by 9-10 per cent opposed to the proposed 1-45 per cent rise across different categories of below 75cc, 75-150cc, 150-350cc and exceeding 350cc. These rates will be effective from April 1, 2014.

The insurance industry has expressed grief over the negligible (less than one third) increase in TP Premium hike against their demanded 60 per cent TP premium hike. On the back of ever increasing inflation, their books are bound to suffer. As a result of which combined ratios will also touch the sky and could at all cost increase to 180-190 per cent.

General insurance companies recorded total claims of Rs 17,589.4 crore in the motor segment in 2012-13, according to data gathered by the Insurance Information Bureau of India (IIB). Whereas, the total premium collected from the segment was Rs 28,460.3 crore.

Of the total claims, Rs 7,506.2 crore came from cars, while Rs.5,626.6 crore was claimed by goods carrying vehicles. The total number of claims made were 6.4 million, while the total number of policies availed were 63.6 million. TP claims amounted to Rs 9,177.3 crore, whereas 'own damage' claims amounted to Rs 8,412.1 crore.

In February, Irda in its exposure draft had recommended a sharp rise in premiums for 2014-15. In the exposure draft on revision in premium rates for TP insurance coverage for 2014-15, Irda suggested a hike of 25-137 per cent for private cars and 1-45 per cent for two-wheelers.

General insurers had sent a recommendation to the regulator to consider rising motor TP premiums by 50-60 per cent to alleviate loss ratios in the segment.

The commercial vehicle segment has been the only reason as to why insurers have asked for steep hikes in overall TP premiums. Even two years after the third-party motor pool for commercial vehicles was done away with, the woes of general insurers are far from over.

Combined ratios for the motor insurance segment have reached 140-150 per cent which obviously means loss for third party motor segment.

The payouts made by insurance companies to individuals for motor third party-related accidents have experienced an increase of 15-20 per cent.

Motor TP pricing is regulated by Irda and revised on a yearly basis. The authority takes into account factors such as cost inflation index notified by the Central Board of Direct Taxes and the claims experience of companies while calculating the premiums.

There are no limits on liability in motor TP policies. In other words, the claim amount could be any number; there is no cap on it.

Therefore, there has been a constant increase in death claims year-on-year. The revised Motor VehiclesAct, which is yet to be discussed in Parliament, puts a cap on liability at Rs 10 lakh. This, according to insurers, will help lessen losses.

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