BackYou may have to pay more for third-party motor insurance
Premiums are likely to see a sharp rise of 25-137% on private four-wheelers
Premium
You may have to gear up to pay a higher premium on third-party insurance policy for your car, especially if it’s a small car. Third-party insurance is a mandatory cover that pays expenses in case of damage by your vehicle to the life or property of a third person. According to the draft proposal released by the Insurance Regulatory and Development Authority (Irda), premiums are likely to see a sharp rise of 25-137% on private four-wheelers.
What is it?
Third-party insurance is mandatory for all plying vehicles. The premium of motor third-party insurance is controlled by the regulator and is tarriffed. For other motor insurance covers, such as own-damage, which covers damage to one’s own car, the premium is decided by the insurer.
In case of an accident that causes bodily injury or loss of life, the third-party cover is unlimited. The entire amount of compensation is borne by the insurer. How much to pay is decided by the court by taking into consideration the earning capacity and age of the injured/deceased person.
Third-party cases are fought at motor accident claims tribunals. In case of damage to property, the maximum liability is limited to 7.5 lakh.
Why the hike in premium
Given that premiums are tarriffed and controlled by the insurance regulator, but the claims liability on insurers is unlimited, insurance companies have suffered big losses on account of third-party insurance. In fact, the average size of death claims from third-party insurance has been increasing over the years—while in FY08 the average death claim was around 2.1 lakh, in FY13 it had increased to about 3.9 lakh.
To bring some parity between third-party premium rates and the huge loss ratios, the regulator in 2011 agreed to review premiums yearly on the basis of certain parameters such as average claim amounts, frequency of claims, expenses involved in servicing the motor third-party business and cost of inflation index for the year of review.
Given these indicators, for FY15, Irda has proposed a sharp increase in premiums for private cars that have a cubic capacity (cc) of 1,000 or less. The premium is proposed to increase by about 137% from 941 to 2,227.
Insurers say this steep increase is due to the popularity of small-segment cars and the rise in the quantum of death claims. Cars over 1,000 cc but less than 1,500 cc will see an increase in premium of about 50% from 1,110 to 1,667. Cars with a cubic capacity of over 1,500 will see an increase of about 25% from 3,424 to 4,295.
Irda has invited comments on the revised premium rates after which it will come out with the final hike in the premium rates.
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