Increase in Motor TP premium and its Impact

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Fall in global fuel prices over last year has brought cheer to the car users as the cost of maintaining four wheelers has gone down.

However, the cheer may not continue for long as the new IRDA proposal is bound to increase the motor insurance premium. This hike will be sixth in as many years by the regulatory body.

This increase is aimed at reducing the losses faced by the insurance companies in their motor insurance segment.

In 2015, motor insurance was the largest non-life insurance segment with a market share of 44% and a YoY growth of 10.5%. According to IRDA, motor insurance had a high claims ratio of 77.14%. Motor Third party insurance is compulsory for all vehicles driven on Indian roads.

It has two segments; own damage cover, which is optional, and the mandatory third-party cover.The latter covers the liability arising from third party claims due to accidents.

The third party motor insurance premiums are expected to increase across all the segments be it two-wheeler or four-wheeler with commercial vehicles bearing the maximum impact.

The table below shows the proposed increase in the third party motor insurance premium

Category of Vehicle

Existing Premium

Proposed premium from 1 April 2016

% Change

Private Cars – Not Exceeding 1000 CC

1468

1908

30

Private Cars – Above 1000 CC but below 1500 CC

1598

1998

25

Private Cars – Above 1500 CC

4931

6164

25

Two Wheelers – Not Exceeding 75 CC

519

569

10

Two Wheelers – Above 75 CC but below 150 CC

538

619

15

Two Wheelers – Above 150 CC but below 350 CC

554

693

25

Two Wheelers – Above 350 CC

884

796

-10

Commercial Vehicle (Public) – Above 12000 KG but Below 20000 KG

19,362

22,577

15

Commercial Vehicle (Public) – Above 20000 KG but Below 40000 KG

19,766

24,708

25

Commercial Vehicle (Public) – Above 40000 KG

19,846

25,800

30

Commercial Vehicle (Private) – Not Exceeding 7500 KG

8,721

7,849

-10

Commercial Vehicle (Private) – Above 7500 KG but Below 12000 KG

8,868

11,528

30

Commercial Vehicle (Private) – Above 12000 KG but Below 20000 KG

8,972

9,390

5

Commercial Vehicle (Private) – Above 20000 KG but Below 40000 KG

11,149

12,821

15

What is its impact?

A quick analysis of the table above can give you an idea about how much extra you will have to shell out as per the new premiums rates. In percentage terms, Private cars as a segment will have 25% plus hike across all segments, with entry level cars (under 1000 CC) getting a premium hike of 30%.

In commercial vehicle segment, the pubic carriers will be the most hit with monetary hikes in the range of INR 3200 – 6000 across all weight categories. The rise in percentage terms are in the similar range 25-30% as private vehicles.

Two wheelers will also see a steep rise of 10-25 % across various segments, with the only exception of ‘above 350 CC’ category showing a decline of 10%. Similarly, the only other category witnessing a fall of 10% is private commercial vehicle ‘under 7500 KG’.

Cap on the time-period to file claims

Post discussion with respective stakeholders, the regulatory body is also looking to set cap on liability and fix time period for filing a claim. Post the completion of the filing period, the parties will not be able to file claim. Currently, there is no cap on claim amount and no time period fixed for filing the claim.

These proposed changes will surely help the insurance companies in improving the performance of motor insurance segment. However, the policy holders needs to be better aware about the various plans and variants offered by the companies post the new proposal implementation to minimise the impact of premium hikes.

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