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Insurance Article

Third Party Insurance Premium for Your Car Has Risen 70% in the Past 3 Years

April 18 2017
Third Party Liability Insurance

Statistics from the Insurance Regulatory and Development Authority (IRDA) reveal that insurers have increased the cost of car insurance premium by 40% to 96%

As a car owner, you are liable for any injury to or death of a third person and damage to third party property caused by the use of the vehicle in public place. It is mandatory by the law for you to buy insurance cover for third party liability that could arise because of your car.

Rise in Third Party Premium

The premium you pay for third party liability insurance has been increased by 40% with effect from April 1, 2017, for cars with engine capacity of 1,000 CC and above. The premium for cars with engine capacity of less than 1,000 CC has remained unchanged.

The third-party liability premium is decided by the IRDAI. The formula used by the IRDAI to arrive at the third-party liability insurance premium considers the claims incurred and expenses involved in servicing the motor third party business of insurance companies.

Third Party Liability Insurance

Third party liability insurance is one part of the motor insurance business of insurance companies. The other part involves cover for damage to the car, accident insurance cover for the driver and personal accident cover for the owner, which is generally described as own damage insurance.

Only the third-party liability insurance premium is decided by the IRDAI. This cover is legally mandated and every vehicle owner must buy it. Insurance companies are free to decide the premium for own damage insurance.

High Claims Ratio for Motor Insurance

The incurred claims ratio for motor insurance business in 2015-16 was 81%, up from 77% a year earlier. The incurred claims ratio is very high making the motor insurance segment a loss-making one. Motor insurance is the largest business segment for general insurance companies with about 44% shares in total business.

Private cars constituted 25% of the total motor insurance policies issued, while contributing 45% of the total motor insurance premium. Of the total premium for car insurance, 75% of the premium was for own damage.

Own Damage Claims

Accidents were the cause of bulk of the own damage claims and 67% of the accident claims were due to accidents involving cars. Two-wheelers accounted for 24% and goods carrying vehicles 4% of the total accident claims. Cars also accounted for a substantial portion (83%) of the own damage claims made for reasons other than accidents and thefts. The total number of theft claims in 2015-16 was 1.43 lakh. Of which, 71% were for two-wheeler thefts, 16% for car thefts, and 8% for goods carrying vehicles.

Car insurance accounts for nearly half of the total motor insurance business of general insurance companies. The share of cars in third party claims is one-fifth of the total, both in claims paid due to death as well as injury.

Claim Frauds and Rise in Premium

The claims are so high that increasing the premium becomes inevitable for insurance companies. Claims fraud is one of the reasons for losses in motor insurance business. Frauds happen due to three counts – fraud committed by the insured to obtain wrongful compensation or exaggerated claims, fraud committed by employees in collusion with fraudsters, and fraud committed by insurance intermediaries.

Containing frauds is one of the ways to lower the claims ratio. Implementing telematics to usher in usage based insurance could be one of the solutions. In telematics, the premium would be linked to how a car is driven – less risky or highly risky.

According to the IRDA, Third Party Insurance Premium for 2017-18 would be as follows:

Private Cars 2017-18 2016-17 % Increase
Less than 1000 CC ₹ 2,055 ₹ 2,055 0%
1000 CC to 1500 CC ₹ 3,132 ₹ 2,237 40%
Exceeding 1500 CC ₹ 8,630 ₹ 6,164 40%

Related Article:

Five Reasons Why Car Insurance Claims Get Rejected
When Cars Drive Themselves, How Car Insurance Gets Impacted?

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