Motor insurance companies are likely to report steep losses of over 150 percent over last year as higher claims by third party (TP) segment could weigh heavily on their business.
Premium hikes which have not been commensurate with the rise in claims will further keep profits low.
All 27 general inusrance companies issue motor insurance.
Motor premiums went up by 20-40 percent in FY17 based on claims figures. The Insurance Regulatory and Development Authority of India (IRDAI) regulates third party motor premium in India. All vehicles plying on Indian roads are required to buy third-party motor insurance.
A senior insurance official said that losses have been rising since there is no limit on the amount that can be claimed under third-party motor. On the other hand, the claims being passed on by courts have also seen a 25 percent rise.
“Due to the fact that there is no limit to the amount an accident victim family in a motor case can claim, there have been many exaggerated claims. We have no other option to pay which is hitting the books,” said the head of a underwriting firm at a mid-size private general insurer.
The insurance regulator takes into account the demands of transporters' lobby and also that of customer forums before taking a decision on the final rate of premium increase in the TP segment.
Over and above this, IRDAI has said that every insurer, during a financial year, will underwrite a minimum percentage of about 90 percent of the overall TP motor premium claims received by the industry during the immediate preceding financial year.
Motor insurance consists of third-party and own damage segment. While TP covers liability for third-party accidents, own damage covers damage to self and the vehicle. In segments like commercial vehicles, the loss ratios have been high due to increased number of accidents.
The losses in the motor segment continue to persist because of the TP segment, where pricing is regulated. Even after the TP pool for commercial vehicles was dismantled and declined risk pool was set up, the woes of general insurers are far from over. Combined ratios for the motor insurance segment have stood between 160 and 170 percent for the industry.