General insurers seek higher rate for third-party motor insurance as losses mount

General insurers are seeking a 10-12 percent increase in third-party insurance rates in FY22, saying that losses from claims have risen.

The Insurance Regulatory and Development Authority of India (IRDAI) tweaks the third-party insurance rates every year based on past claims, but the regulator left the rates unchanged in FY21 amidst the Coronavirus (COVID-19) outbreak. The regulator is yet to take a decision for FY22.

If the regulator agrees to the industry’s demand, the mandatory third-party insurance, which protects motorists from liabilities from injury or death to others because of accidents, will become more costly for vehicle owners, but insurers say their viability is at stake. "The loss ratios have exceeded 110 percent for the industry in FY21. If this continues without a price hike, motor insurance will become an unviable business," said the head of underwriting at general insurer.

When motor insurance claims increase, the loss ratios also go up. A loss ratio of 110 percent means that for every Rs 100 collected as premium, Rs 110 is paid away as claims in motor insurance. In FY20, loss ratios stood at almost 105 percent in motor insurance. Transporters are opposing the industry’s demand. India Motor Transport Union member Devandar Pal Singh told Moneycontrol that transport businesses have seen a sharp slowdown and that any insurance price increase would be detrimental.

"We will oppose any price rise proposals because this would add to the rising costs of owning and driving a vehicle. For transport businesses too, this will be big cost rise especially since they are already burdened with fuel price rise," he added.

Why are losses on the rise?

Industry sources said that in the initial parts of the lockdown in Q1 and Q2 of FY21, losses stayed under control because policyholders were completely working from home and not going out even on leisure due to rise in COVID-19 cases.

However, from Q3 onwards when the lockdown eased and movement restrictions were withdrawn, claims started to rise.

"In fears of the virus public transport was being avoided and many policyholders started to drive for work/leisure more frequently. This also increased the accident cases and subsequently claims costs," said the vice president of claims at a private general insurer.

Vehicles like tempos, trucks and mini-vans have the highest claim ratios. This is because of their vehicle design, speed and the nature of movement. These vehicles which were primarily used for commercial goods transport will also be used for moving workers within plants and to their residences.