The proposed increase in third-party auto insurance (TP) premium rates is not in sync with market reality and additional ground intelligence should be used when finalizing premium rates, Shanai Ghosh said, CEO of Edelweiss General Insurance.
The Insurance Regulatory and Development Authority of India (IRDAI) has proposed in its draft notification a substantial increase in long-term PT tariffs for two-wheelers, while nominal increases have been proposed for passenger car tariffs and utility vehicles. In addition, a 15% discount is offered on bicycles and electric cars and a 7.5% discount on hybrid vehicles.
“The last two years have not been a representative period to judge the increase in prices due to COVID. This is because the cars were running less but the courts were functioning. So whatever little awards or judgments we got, they showed a huge escalation also for motor vehicles, the minimum thresholds were set. There is therefore an urgent need to review the pricing. The project, according to the industry, does not give a proportional increase, because they look at the experience of the last few years, which is not at all representative. Inflation and the increase in claims will be much higher than expected in the proposed price increase,” Ghosh said.
Auto insurance premium rates consist of two party and third party damage rates. While own damage covers the insured car, third party liability insurance provides coverage against third party liability. In India, it is compulsory to take out a motor vehicle liability insurance policy.
After two years due to the COVID-19 pandemic, the revised TP insurance premium will come into effect from April 1. Previously, TP fares were notified by IRDAI but from now on the Ministry of Road Transport will notify TP fares in consultation with the regulator. Under the proposed revised rates, private cars with an engine capacity of 1,000 (cc) will have a premium of Rs 2,094 from Rs 2,072 in 2019-20. Similarly, private cars of 1,000cc to 1,500cc will have premium rates of Rs 3,416 from Rs 3,221. For cars above 1,500cc, a premium of Rs 7,897 will be charged. Two-wheelers over 150cc but not exceeding 350cc will attract a premium of Rs 1,366 and for two-wheelers over 350cc the revised premium will be Rs 2,804.
Insurers complain that while auto liability premium rates have remained unchanged in recent years, premium amounts have increased over the years.
“It has been years since automotive third party premium rates have remained unchanged, while premium amounts have increased due to various judgments. However, it is only a draft and we have to wait for the final circular to analyze its impact,” said TA Ramalingam, Technical Director, Bajaj Allianz General Insurance.
The industry states that the TPA premium rates offered for this fiscal year are based on claims experience for the past two years, which is not representative of current losses and therefore additional market information should be applied.
“The price increase proposal process is based on actuarial calculations. So, in fact, the calculations will take into account past experience, and we will look at the data that has been received. So those calculations are correct, but what we’re trying to say is that the calculations for the last two years of experience are not representative and therefore underestimate the requirement or need or amount of increase prices. We will need to apply additional business information on the type of rewards that are granted and how the minimum thresholds have been increased. Claims settlement time is reduced, which is good for the customer. But for insurers’ finances, it means revenues will also fall. This will therefore harm the financial health of the insurer. And therefore, we need to apply additional ground intelligence to decide rates and not just look at past experience,” Ghosh said.
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