Premiums for third-party liability cover under motor insurance likely to go up

  • Premium for private cars over 1500 cc and two-wheelers above 350 cc is expected to continue at the FY19 rates
  • In FY19, insurance premium for smaller cars of up to 1,000 cc was reduced by close to 10% compared to FY18

The premium for third-party liability insurance for vehicles is expected to go up in FY20. According to a draft published by the Insurance Regulatory and Development Authority of India (Irdai) on 20 May, the third-party insurance premium for private cars up to 1500 cc and two-wheelers up to 350 cc is expected to increase by up to 15.3% and 21.1%, respectively (see graphic). The premium for private cars over 1500 cc and two-wheelers above 350 cc is expected to continue at the FY19 rates.

The revision in third-party premiums is expected to impact a majority of car and two-wheeler owners. According to latest trends in domestic sales of cars and two-wheelers, over 2 million of the 3.4 million passenger cars sold in FY19 are with an engine of less than 1,400 cc. Similarly, of the 21.2 million two-wheelers, over 20 million are with an engine capacity of less than 350 cc.

The final notification for FY20 premiums is yet to be published and the premium is currently being charged at FY19 rates. The regulator has sought public comments on the proposed premium till 29 May.

In FY19, insurance premium for smaller cars of up to 1,000 cc was reduced by close to 10% compared to FY18. The premiums were kept unchanged for other categories of cars. Among two-wheelers, the premium for vehicles with 350 cc and above has more than doubled in FY19 compared to FY18.

Third-party premiums are tariffed and so Irdai revises them annually, to keep claims and premiums in sync. These are based on industry data on premiums and claims paid in the past few years. This time, data for the past seven years has been taken into account. As third-party premium is regulated by Irdai, all general insurers charge the notified premium.

Multi-year Plans

From 1 September 2018, multi-year third-party insurance has become mandatory for new vehicles. Accordingly, third-party insurance cover for new cars should mandatorily be for a period of three years and for new two-wheelers, for a period of five years.

Irdai notified premiums for multi-year third-party policies for new private cars and two-wheelers in August 2018. These are likely to remain unchanged in FY20.

This premium is not just a multiple of the existing third-party premium: in some cases, like small cars and smaller two-wheelers, it is less than three times or five times the one-year premium. For other higher categories, it is higher by three or five times the one-year premium. The pricing is based on claims behaviour and related losses for insurance companies in particular categories.

The revision of premiums is only for the third-party liability part of a motor policy. Having third-party insurance is mandatory for all vehicles. The other part of a motor policy is the own-damage cover, which covers damage to one’s own vehicle in case of an accident or theft. Insurers decide the premium for this based on the insured declared value of a vehicle, along with factors such as age of the vehicle and place of registration.

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