There is some good news for the vehicle owners and buyers. The unjustified motor third party premium hike may not happen on April 1 as expected by the non-life insurers but later in that month. The Ministry of Road Transport and Highways on March 21 published a draft notification indicating the proposed premium rates for the mandated motor vehicle third party insurance.
As per the notification, the new rates and rules shall be taken into consideration after the expiry of a period of 30 days from the date on which the copies of this notification as published in the Gazette of India, are made available to the public.
The Central government has called the rules as the Motor Third Party Premium and Liability Rules for the Financial Year (FY) 2022-23.
Vehicle insurance policies have two parts — own damage (insurance for the vehicle against damage, theft) and third party liability (liability for third parties). The third-party insurance cover is mandatory whereas the insurance cover for vehicle damage is not mandatory and the rates are administered.
The premium amount charged factors aspects like: expenses, claims outgo and profit.
At a time when Indian non-life insurers are raking in crores of rupees as premium and paying far less as claims under the motor third party liability policies, the government has proposed a premium hike for 2022-23.
The only silver lining is that there is a slight dip in the premium to be paid by two-wheeler and private car owners, while there is a hike in taxi, truck and bus segments.
The government has also proposed a 15 per cent in the insurance premium for electric vehicles and 7.5 per cent for hybrid electric vehicles.
Industry officials and experts are baffled at the proposed premium discount by the government.
“On what basis the discount on electric vehicles have been arrived at is not known. What is good for goose should be good for the gander. If an electric vehicle is eligible for a premium discount then, other vehicles should also be eligible," industry officials told IANS preferring anonymity.
As per the proposed rates, owners of two-wheelers with cubic capacity (cc) between 75cc and 150cc will pay lower a rate at Rs 714 per year (Rs 752). However, there is a hike in the case of other classes of two-wheelers.
In respect of new vehicles where third party cover is provided for three years for private cars and five years for two-wheelers, the rates have been hiked.
“There is very little justification for the hike. The provisions made against the claims are increasing, but not the actual claims pay out. The formula-based premium increase needs to be relooked," K.K. Srinivasan, former member (non-life) of Insurance Regulatory and Development Authority of India (IRDAI), told IANS.
Contrary to the claims made by the general insurers that they are incurring huge losses under the motor portfolio, the actual numbers as per the Insurance Information Bureau of India (IIB) and studies by industry lobby General Insurance Council show the contrary.
As per the Indian Non-Life Industry Year Book 2020-21 published by the General Insurance Council, the total premium earned under the motor insurance was Rs 67,389 crore by the industry. The industry invests the sum and earns income on this as well.
The total claims paid during 2020-21 was Rs 28,726 crore- towards vehicle damage Rs 17,834 crore, towards third party liability Rs 10,892 crore- netting the industry a whopping surplus of Rs 30,854 crore.
The total number of third party claims settled during the year was 257,165.
The average settlement per claim was Rs 423,541. During 2019-20, as per the data published by the General Insurance Council, the total motor insurance premium earned by the industry was Rs 68,951 crore — vehicle damage Rs 26,524 crore, third party liability Rs 42,427 crore.
The total claims paid for 2019-20 was Rs 38,071 crore — towards damage to vehicles at Rs 20,552 crore and third party liability at Rs 17,519 crore.
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The gross surplus was a whopping Rs 30,880 crore.
The total number of third party claims settled during 2019-20 was 403,283 with an average pay out of Rs 434,409.
In its annual report on motor insurance for the 2018-19 fiscal, the IIB said a sum of Rs 35,519 crore of motor claims — towards vehicle damage Rs 18,262 crore and third party liability Rs 14,257 crore — were settled during 2018-19, while the gross underwritten premium was Rs 64,522.35 crore.
According to the report, the average settlement amount for death claims during 2018-19 fiscal was Rs 901,207 while for injury claims it was Rs 251,094. The blended average works to Rs 576,150 per claim.
From the numbers above, one can note the decreasing average per claim amount from 2018-19 to 2020-21.
The industry players also claim that a large number of vehicles run on the roads without third party insurance.
However, they do not have any answer when asked how that impacts them as they pay claims only on those policies issued by them and it is for the police to penalise the violators.
According to the Central government, the paid claims data has been considered for construction of cumulative paid claims triangles for each homogenous subclass with Accident Year (AY) as origin year and Financial Year (FY) as development year.
In order to arrive at the premium rates, the ultimate claims cost of respective segment for each accident year has been estimated using the actuarial technique of Basic Chain Ladder Method.
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