IRDAI Increases Third Party Insurance Premium Rates in 2016 

A third-party insurance policy protects policy holders from the liabilities which arise in the event of an accident which may lead to damage of the vehicle, injury or death. It brings protection against unforeseen circumstances. Usually, the third party motor insurance is a part of the main policy. Some insurers offer this as a standalone cover as well. In India, third party insurance is an essential requirement when car owners buy insurance. Under Motor Vehicles Act 1988, third party liability cover has been made mandatory in India.

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About third-party motor insurance

A third party commercial vehicle insurance can be defined as the policyholder’s insurance against disability, death or damage which is caused to the third-party in case of an accident. At times the third-party insurance is also called the “Act Only” cover as it applies to the third person involved in an accident instead of the vehicle owner or the insurer. Effective from 1st April, 2016, IRDAI (Insurance Regulatory and Development Authority of India) has increased the third-party motor premiums. The new rates indicate a 40% rise in the car insurance premiums and a 25% hike in two wheeler insurance premiums. The third party rates for commercial vehicles will rise by 5% to 30%. In case of loss of life, the coverage is unlimited. In the case of damage to property, the maximum coverage is 7.5 lakhs. Third party insurance will not cover the losses which are incurred on the own property.

Third party insurance premium rates raised

A motor insurance can be categorized into two; comprehensive cover and third-party insurance (either third party car insurance or third party bike insurance. Premiums on the comprehensive cover is determined by the auto insurance companies whereas the premiums on third party is decided and fixed by the IRDAI. The third party insurance premiums are reviewed by IRDA annually and revised based on cost inflation and the claim statistics. In the last 5 years, IRDA has increased the insurance premium every year. Keeping in view the large losses which are faced by insurance companies and a rise in cost inflation index by 5.57% the IRDAI has decided to hike the premium rates for third party insurance this year as well for all segments of two wheelers and cars. While ascertaining the need to hike rates, IRDAI has referred to the Insurance Information Bureau. An additional factor which has led to the increase in premium rates is the rise in service tax owing to additional cess.

You may also like to Read: Third party Liability Insurance for Motor

An overview on new TP insurance premium rate

Let’s take a look at the latest third party premium rates as have been laid down by the IRDA:

Cars Old Premium Premium for 2016-17 Change
Upto 1000 cc Rs. 1468 Rs.2055 40%
1000cc to 15000cc Rs. 1598 Rs.2,237 40%
1500cc and above Rs. 4931 Rs. 6,164 40%

 

Two wheelers Premium for 2016-17
Upto 75cc Rs.569
75cc-150cc Rs.619
150cc-350cc Rs.693
350cc and above Rs.796

 

It is important to note that rates have also been increased for three-wheelers. Although the hike is steep from the policy holder’s point of view it is not from the viewpoint of insurance companies. It has been estimated that an 80% hike in the premium rates would be required to effectively combat the losses. Insurers have been warned by IRDA against refusing third party claims. All insurers are required to offer third party covers online to make them easily accessible to vehicle owners.

Incurred claim ratio decreases over the years

IRDAI data reveals that an increase in third party insurance premiums in the last few years have offered some respite to insurers who belong to the motor insurance category. An increase in tariff has helped the insurers to limit their loss ratio to some extent. The incurred claim ratio for the motor insurance segment has been 77% in financial year 2014-15 as compared to 80% in financial year 2013-14. The incurred claim ratio can be defined as the ratio of net incurred claim to net premium. Or in simpler terms it is the claims received for the premiums paid. A lower incurred claim ratio indicates healthy growth and higher profitability for the insurer.

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^The renewal of insurance policy is subject to our operations not being impacted by a system failure or force majeure event or for reasons beyond our control. Actual time for a transaction may vary subject to additional data requirements and operational processes.

^The buying of Insurance policy is subject to our operations not being impacted by a system failure or force majeure event or for reasons beyond our control. Actual time for transaction may vary subject to additional data requirements and operational processes.

#Savings are based on the comparison between highest and the lowest premium for own damage cover (excluding add-on covers) provided by different insurance companies for the same vehicle with the same IDV and same NCB.

*TP price for less than 75 CC two-wheelers. All savings are provided by insurers as per IRDAI-approved insurance plan. Standard T&C apply.

*Rs 538/- per annum is the price for third party motor insurance for two wheelers of not more than 75cc (non-commercial and non-electric)

#Savings are based on the comparison between the highest and the lowest premium for own damage cover (excluding add-on covers) provided by different insurance companies for the same vehicle with the same IDV and same NCB.

*₹ 1.5 is the Comprehensive premium for a 2015 TVS XL Super 70cc, MH02(Mumbai) RTO with an IDV of ₹5,895 and NCB at 50%.

*Rs 457/- per annum (1.3/day) is the price for the third-party motor insurance for private electric two-wheelers of not more than 3KW (non-commercial). Premium is payable on an annual basis