The Ministry of Road Transport and Highways (Morth) has come out with the new draft notification on the premium for mandatory third party motor cover on June 14 and has preferred to retain the same level premiums in most of the categories
In FY 2022-23, the motor TP premium had gone up by 14.44 per cent to Rs 49,508 crore from Rs 43,260 crore in 2021-22
New Delhi:
Giving much desired relief to the auto owners from high inflation and for providing a boost to the domestic auto sector, the government, in a marked departure from earlier trends, will not to hike the annual motor third party(TP) premium or rather has suggested reduction of premiums in couple of segments in FY 2023-24 that will be now implemented from August.
The Ministry of Road Transport and Highways(Morth) has come out with a new draft notification on the premium for mandatory third party motor cover during FY23-24 on June 14 and has preferred to retain the same level premiums in most of the categories.
“We will complete our feedback exercise from the stakeholders of industry by July 15 and the new rates in some segments will be implemented by August,” said Morth sources.
Except for two years of Cocid-19 Pandemic, the Motor TP has been rising by 10-15 per cent across categories every year in the past. In fY2022-23, the motor TP premium had gone up by 14.44 per cent to Rs 49,508 crore from Rs 43,260 crore in 2021-22
Along with the consultation of insurance regulator IRDAI, Morth takes data provided by the Insurance Information Bureau of India (IIBI) into consideration for arriving at the Motor TP premium rates for any given year.
Also, the claims paid data in respect of each of the accident years starting from the year 2011-12 up to 2021-22 and gross written premiums for the period between 2011-12 to 2021-22 have been considered for calculating the premium for 23-24, said Morth.
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, added Morth.
Since FY 2022-23, MoRTH has taken over the task of fixing the revised motor TP premium from the insurance regulator IRDAI which used to unveil the draft for revised premium by March second week to be followed by the final rate to be made effective from April 1.
However, last year, MoRTH had issued the draft proposal by mid-May and the final rate by June 1
The ministry has proposed a reduction of premium in couple of Motor TP categories, including three wheelers used for carrying passengers with carrying capacity exceeding six passengers particularly for educational institutions, where the basic premium will fall from Rs 13,729 to Rs 12,192 and per passenger, it will fall from Rs 839 to Rs 745.
For a owner of three wheeler vehicles used for carrying passengers for hire or reward with carrying capacity not exceeding 6 passengers (except e-rickshaw), the motor TP premium will fall from Rs 2539 to Rs 2371 in FY 23-24.
Similarly, for three wheeler e-rickshaw, the premium will from Rs 1648 to Rs 1539, for four or more wheeled e-vehicle used for carrying capacity exceeding six passengers for educational institution, the premium will fall from Rs 11,670 to Rs 10,363.
Vintage cars will continue to avail 50 per cent discount on premium while a discount bof 7.5 per cent on premium will be allowed for Hybrid vehicles.
The act of not hiking premium for a mandatory motor TP in FY 2023-24, may be a cheering news for the vehicle owners and auto industry but has given a jolt to the general insurers who usually demand a hefty hike in premium in this segment to compensate the rising claims leading to the underwriting losses for them.
Normally, the combined ratio(CR) of the motor TP segment has never fallen from 140 per cent -150 percent in all these years for the industry and the loss in this segment routinely wipes out the total profitability of a general insurer and is the single most factor responsible for its overall underwriting loss and the company ultimately depends upon the investment income for recording any net profit.
Situation is worse for PSU general insurers in the matter of motor third party portfolio.
Before Covid-19 Pandemic , motor segment used to be the largest portfolio for the general insurance industry and in the motor segment, mandatory motor TP cover remained as the highest premium grosser for any general insurer.
Most of the claim out of motor TP cases end up in courts(starting with Motor Accident Claims Tribunal) and take a long-time to be settled and India follows a principle of unlimited liability for settling any Motor TP cases.
However, the motor TP portfolio generates large amount cashflow for a general insurer that helps the company to have sizeable investment income.
In 2022-23, the motor TP premium had gone up by 14.44 per cent to Rs 49,508 crore from Rs 43,260 crore in 2021-22.
However, industry observers point out that not hiking motor TP premium, considered as `safe cushion’ for the general insurers, will force them to find ways to provide covers to uninsured vehicles constituting almost 50 per cent of total automobiles in the country.
In fact, the IRDAI is now pushing the general insurers to do so.
For a company like Shriram General Insurance, 90 per cent of its premium income come from motor business.
Passenger vehicles sales in India grew by 26.7 per cent in the fiscal year 2022-23, auto industry body said. As per the latest data of Society of Indian Automobile Manufacturers (SIAM), domestic wholesales of passenger vehicles were at 38,90,114 units, as compared to 30,69,523 units in the previous year.
Two-wheeler sales, on the other hand, clocked 12,90,553 units in the domestic market last month, as compared to 11,98,825 units in the year-ago period. Two-wheeler sales rose 16.9 per cent in fiscal year 2022-23, Society of Indian Automobile Manufacturers (SIAM) said.