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IRDA drafted a proposal to increase the premium rates of the third party motor insurance for the fiscal beginning from April 1, 2015. According to the reports from IRDA, the average rate of death claims has increased over the years. Moreover, the death claim size is arising out of the policies issued in the years 2014-15 and still expected to go much higher which has to be settled in the next eight to ten years.
Third party cover will include more than own damage which is for the vehicle. It is a mandatory cover which comes along with the own damage cover that a vehicle owner must purchase. This insurance would cover any damage to the third party in the case of an accident. A human being involved with the vehicle in a road accident.
In the year 2013 and 2014, the death claim average raised above 12 per cent as per the information released from the insurance information bureau. The information has invited a range of comments from all the stakeholders by March 2015. IRDA used the information of the underwriting periods from 2007-08 and 201-14 for making the case of raising the insurance premium towards third party motor insurance.
After insurance ordinance, the insurance regulatory and development authority of Indian then clarified that every insurer would have to ensure that the third party over has been made available to the insurer as per the marker share. The underwriting losses will be increased with the new provision which will be prompting them to find a hefty hike in the premium payout.
The third party motor business should mandatorily make insurance available to general insurer according to the market share. For example, if the company has 10% market share then the cover should be in proportion to the market share according to the statementfrom the IRDA Chairman T S Vijayan. The third party Motor insurance is a loss making business, as the claims are more than the premium collected. Every year the industry is burdened with loss of Rs 7000 to Rs 8000 crore and this affects the overall profitability.
(Source: This article has been adapted from the article “IRDA draft on hike in premium for 3rd party motor insurance” that appeared on March 10, 2015 in economictimes.indiatimes.com)