Third-Party Motor Insurance May Cost More From April 1, Two-Wheelers Worst Hit

India’s insurance regulator has proposed to increase third-party motor insurance premiums after two years for most vehicles, including electric vehicles. That could be another blow for the struggling low-cost two-wheeler segment.

Until now, the pricing prescribed in June 2019 is applicable. The Insurance Regulatory and Development Authority of India's March 4 draft notification proposes a hike in the base premium and liability of insurers for the 2023 fiscal from April 1.

The increase is a positive step for the industry since there has been no hike for a long time, Sanjay Datta, head of underwriting and claims at ICICI Lombard General Insurance Co., told BloombergQuint. He expects it to be "fair to all stakeholders".

The five-year upfront insurance costs will rise nearly threefold for low-cost scooters and motorbikes of up to 75cc, according to the IRDAI draft. The category was worst hit by the pandemic as incomes fell. Even prior to Covid-19, higher cost of insurance had hurt the segment that is considered an indicator of rural consumption.

While third-party insurance rates remained unchanged, the compensation (for accidents) to be paid by insurers has been increasing owing to various court judgments, said TA Ramalingam, chief technical officer at Bajaj Allianz General Insurance. "The draft notification proposes a substantial increase in long-term two-wheeler third-party rates, whereas there’s a nominal increase in private car and commercial vehicle rates."

The draft prescribes the base pricing and methodology to calculate premium for private and commercial vehicles, including hybrid and electric vehicles. The proposed rates have been calculated based on claims data and gross premiums of the last 10 years.

Objections or suggestions are invited till March 14.

To push the use of environment-friendly vehicles, the draft proposes:

• A discount of 15% for electric cars, two-wheelers, goods-carrying commercial vehicles and passenger carrying vehicles.

• A discount of 7.5% for hybrid electric vehicles.

Mandatory third-party vehicle insurance on purchase of new vehicles was introduced in 2018 for fiscal 2019, but the rates for multi-year plans (usually 3-5 years) have not been revised since then.

The insurance regulator now plans to hike long-term premiums for both new two-wheeler and four-wheeler categories.

Long-term premium rates for new two-wheelers of less than 75 cc may see the steepest rise at 178%, while it's likely to rise 17% for scooters and motorcycles between 75-150 cc, and 35% for bigger motorbikes of 150-350 cc.

In the four-wheeler category, the small car segment of less than 1,000 cc will be the most affected. Customers will have to shell out 23% more for a motor-third party cover at the time of buying the vehicle.

The proposed hike may add to the woes of the ailing two-wheeler segment, said Vinkesh Gulati, president of Federation of Automobile Dealers Association. "While the hike on a yearly basis may seem nominal, the five-year upfront payment along with the GST impact may further affect demand."

Comparing February 2022 data with the pre-Covid February 2019 numbers, he said two-wheeler sales have contracted 25%. Cars and utility vehicle segment is unlikely to suffer as demand outstrips supply.

"We need to wait for the final circular to analyse the impact," said Ramalingam.