Even at a time when 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 Centre has proposed a hike in the vehicle insurance premium rates for 2022-23.
However, 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 Ministry of Road Transport and Highways on Friday issued a draft notification for revising the premium for motor third party insurance.
The government has also proposed discount of 15 per cent in the insurance premium for electric vehicles and 7.5 per cent for hybrid electric vehicles.
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 the case of new vehicles where third party cover is provided for three years in case of private cars and five years in the case of two-wheelers, the rates have been hiked for all classes.
"There is very little justification for the hike. The provision 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.
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.
As per the Indian Non-Life Industry Year Book 2019-20 published by the General Insurance Council, the total motor insurance premium earned by the industry for 2019-20 was Rs 68,951 crore.
The total claims paid for 2019-20 was Rs 38,071 crore -- towards damage to vehicle at Rs 20,552 crore and third party liability at Rs 17,519 crore.
The gross surplus was a whopping Rs 30,880 crore.
The total number of third party claims settled 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 9,01,207 while for injury claims it was Rs 2,51,094.
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 triangle 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.