Rising third-party insurance premiums
The Insurance Regulatory and Development Authority of India (Irdai) has proposed an increase of up to 50% in the third-party liability premiums of motor insurance. Revisiting the premiums is an annual exercise for the insurance industry. This is done mainly in an attempt to rein in the claims ratio, which is difficult to contain. Claims ratio is the ratio of net claims to net premiums. So, the industry is currently paying more to settle third-party claims than what it is receiving for third-party insurance. And while the premiums go up each year, so do the claims. Read on to know why it happens again and again and how it impacts you.
Irdai’s role in premium pricing A motor insurance policy has two main components—third-party liability and own damage. In India, it is mandatory for all registered motor vehicles to have insurance for third-party liability. The premium for this insurance is fixed by Irdai and is announced every year. Premium paid towards this insurance does not cover damage to the vehicle or its owner. It only covers any liability arising from damage caused to a third party. The damage could be in the form of injury, death of an individual or damage to property in case of an accident. The own damage part of motor insurance is optional and it covers damage to the insured vehicle in case of an accident. This is the part of insurance that also covers thefts. Premiums for this part of a motor insurance policy are not fixed by the regulator and insurers can price it as they see fit. This distinction may not be clear to some people because when they buy a motor insurance policy, the third party and own damage covers come bundled in it. Without knowing it, they actually pay premiums for both covers. We must remember that the Irdai proposal is not about premiums for own damage policies. “There is no reason for the own damage premiums to go up if the third-party premiums are going up. In fact, there is a counterpoint that probably because of an increase in third-party premiums, and the overall insurance cost going up, companies may have to lower the own damage premium so that they can keep the overall price reasonable,” said Puneet Sahni, head, product development, SBI General Insurance. In fact, insurers keep revising own damage premiums from time to time. “It is very dynamic. In some cases, these rates fluctuate every 15 or 30 days,” said Indraneel Chatterjee, co-founder,