How increased third-party motor insurance premium affects you?

Adhil ShettyBankbazaar.comThe IRDA has increased third-party motor vehicle insurance premiums, effective April 1st 2016. The new rates represent an increase up to 40% in car insurance premiums and up to 25% in two wheeler insurance premiums. Third-party insurance coverageMotor vehicle insurance is broadly categorised as third - party insurance and comprehensive insurance. Third - party insurance is a legal requirement in India for all vehicle owners. Third party insurance covers any damage done to another person’s life or property. In case of loss of life, coverage is unlimited. In case of damage to property, liability is limited to a maximum of Rs. 7.5 lakh. Third party insurance does not cover losses incurred for self or own property.Comprehensive insurance, on the other hand, includes personal accident insurance and is optional. A comprehensive policy would cover loss or damage to own self and property as well as to third-parties. Coverage provided is as per the policy offered by insurance companies.How are premiums set on TP Insurance?Auto insurance companies can determine premiums on comprehensive or personal accident covers or other forms of auto insurance. But premiums on third party covers are fixed by the IRDA. The IRDA reviews third party auto insurance premium rates annually and revises the same based on cost inflation and claim statistics. The IRDA has raised premiums every year over the last 5 years. In view of large losses faced by auto insurance companies and a rise of 5.57% in the cost inflation index (CII), the IRDA decided to hike third party auto insurance premium rates across all segments of cars and two wheelers for this year as well. In studying the need for a hike in rates, the IRDA has referred to information from the Insurance Information Bureau. Another contributing factor to the rise in premiums is the rise is service tax due to the introduction of an additional cess viz. The Krishi Kalyan Cess, introduced under latest Union Budget. This raises ST to 15%.Latest TP Insurance Premium Rates 2016 - 2017Premiums on small and mid-segment cars have been hiked by 40% from last year and on large-segment cars/SUVs by 25%. Premiums on bikes and scooters have been hiked by 10% to 25% except in the case of heavy duty/ superbikes which saw a dip in premiums by 10%.Rates have also been hiked for three-wheelers and a new category has been introduced viz. ‘E-rickshaw’ i.e. vehicles with a capacity of 6 passengers for which premiums has been set at Rs.1,125. The hikes being on third-party insurance affect all vehicle owners. However, the new rates will only apply to new policies. Existing policies will continue at existing rates. Once renewed, new rates will apply. Weighing in on the rate hikeAlthough the hike seems steep from a policyholder’s point of view, it is quite the opposite from that of insurance companies. They estimate an 80% hike would have to be instituted to effectively stem losses. This is mainly because third-party claim rewards have been on the rise by approximately 30%. The IRDA sternly warned insurers against refusing third-party claims leading to a higher claim settlement ratio. General insurance companies are discouraged by rising losses to issue TP covers especially but have now been legally directed to generate targeted numbers of annual business from the third-party insurance segment. They are also now required to offer third-party motor covers online making them more accessible and easier for motor vehicle owners to buy. Insurers were especially hesitant to cover commercial vehicles, which are considered a high-risk category, in order to reduce burden on losses arising from claims. The IRDAI has also directed the discontinuance of the Declined Risk Pool as of April 1, 2016 having now stipulated underwriting targets for third-party motor insurance. The declined risk pool replaced the Third Party Claims Pool. A large number of TP motor claims in India reflects road traffic risks and higher incidents of motor vehicle accidents. TP claims can be brought down by better road traffic management to contain the incidence of risks/accidents.Making a TP Motor Insurance Claim In most cases, vehicle owners settle out-of-court by negotiating a deal between themselves. Establishing fault in case of TP claims can be quite tedious. Most claimants are not even aware of how to go about making a TP claim to begin with. Claim approval and settlement can range from 1 to 2 years. Only after this can compensation be claimed from the perpetrator’s insurance company. In the unfortunate case of an accident, an FIR should be lodged with the police and a charge sheet obtained. Post this a case has to be filed at the claims tribunal set up for motor vehicles claims; one with jurisdiction over the accident site. TP motor insurance claims are not settled by insurance companies but by constituted tribunals who review and approve or reject claims. Injury claims can pertain to physical injury, medical treatment or earnings loss. Death claims can be made by legal heirs of the victims. Property damage claims will require a surveyor’s and inspection report and related bills.