Motor insurance premiums set to go up from April 1

Motor insurance premiums are set to go up by 15-20 per cent from April 1. Industry experts say that a variety of factors will drive the increase in various categories of motor insurance.

A major change will be the dismantling of the motor third party pool from March 31, 2012, which was announced by the Insurance Regulatory and Development Authority earlier.

Third party premiums are governed by the regulator. “We are expecting some correction (upward revision) in the annual review by the regulator on the basis on escalation,” Mr Mukesh Kumar, Head of Strategy, HDFC ERGO General Insurance, told Business Line on Tuesday.

In view of inflation and other factors, the regulated premium in this segment could go up by 10-15 per cent as part “automatic correction in line with IRDA's formula,” he added.

The higher claims ratios in various other segment of motor insurance could also lead to an increase.

The own-damage vehicle insurance premium in the commercial vehicle segment is also going to be dearer.

According to Mr Amitabh Jain, Vice-President-Motor, ICICI Lombard, there could be 15-20 per cent hike in premiums in this segment. Some other experts feel that this could go up even higher.

Most of the insurers have till recently been offering discounts in premiums anywhere between 20 and 30 per cent. This may not happen now, which means that the premium would go up.

DECLINED POOL

In an order issued in December last year, IRDA created a Motor Third Party Declined Risk Insurance Pool to provide mandatory third-party cover for commercial vehicles.

It would be applicable to all commercial vehicles for standalone third party insurance which is mandatory as per the Motor Act.

The reason for dismantling of motor third party pool was the huge losses for the insurers.

Total motor premium during 2010-11 was at Rs 16,879 crore, while the expected ultimate loss is Rs 17,432 crore.

Mr J. Hari Narayan, Chairman, IRDA, told Business Line recently that he expected the situation to improve with the creation of the declined pool.

“I am sure that time will confirm our belief that the declined pool mechanism would lead to better management of third party claims to the benefit of all stakeholders,” he said.

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