Sources told Moneycontrol that the new rates will be notified in the next few days.
In bad news for vehicle owners, third party motor premium is set to rise by 17-20 percent in FY20.
The premium of this component of motor insurance is fixed by Insurance Regulatory and Development Authority of India (IRDAI) and is revised annually.
Sources said that the new rates will be notified in the next few days.
This year, the premium increase will pinch policyholders harder because making long-term covers mandatory for cars and bikes from September 1 last year had led to a jump in insurance rates.
The Supreme Court in August 2018, mandated sale of only sell three-year car insurance and five-year two-wheeler insurance for the third party segment from September 1 on wards. This led to a rise in premiums by 2.86-3.08 times and 2.45-5.61 times for new cars and bikes purchased after this date, respectively.Third party motor insurance products are mandatory for all vehicles running on Indian roads. Pricing of these products is decided by the insurance regulator IRDAI taking into account the type of vehicle, past claims data as well as engine capacity.
Third party insurance protects the vehicle owner from financial liabilities incurred due to accidents. If a pedestrian or another vehicle's passenger gets injured or dies during a mishap by vehicle X, the motor third party cover of the vehicle X owner will pay for the damages.
Since the loss ratios are in the range of 120-130 percent in the motor third party segment, there is a rise in premiums every year. Loss ratios mean that for every Rs 100 collected as premium, Rs 120-130 are paid out as claims.
Insurance industry sources said that while this may impact car/bike sales, it is necessary to sustain the business.
"Third party business is a bleeding portfolio. The only way to help build and manage the books it to gradually increase premiums on an annual basis," said the underwriting head of a private sector general insurer.
In F19 too, motor insurance premiums were hiked for a few categories. As against the industry demand of a 30 percent hike, IRDAI increased premiums by 4-16 percent across passenger and commercial vehicles.
Insurers have sought pricing to be freed in third party insurance. However, IRDAI has not yet taken a decision on this issue.