Rise in third-party motor cover premium rates to partially offset underwriting losses for insurers: Report

The recent hike in premium rates on third-party auto insurance is unlikely to fully offset the auto insurance segment’s underwriting losses, Crisil Ratings said in a report. As of June 1, the premium rates for third-party car insurance have been increased.

Two-wheeler insurance premiums have risen the most — at 12-21 percent — over motorcycle capacities. For passenger cars, the maximum increase is 6 percent.

“The decision by the Ministry of Roads and Roads to increase motor insurance premiums after two years is a step in the right direction, but it is unlikely to fully offset the segment’s underwriting losses,” the rating agency said in the statement. report.

Third-party liability cover is for non-own damage and is required (under the Motor Vehicles Act, 1988) to purchase along with own damage cover.

Insurance losses occur when claims exceed an insurance company’s premium income.

The last time premiums were increased was in June 2019, and after that, policyholders were given some reprieve due to the COVID-19 pandemic, the agency said.

Senior Director and Deputy Chief Ratings Officer Krishnan Sitaraman said underwriting losses remain high in motor insurance as premiums earned on policies are insufficient to pay policyholders’ claims.

“Therefore, any premium increase helps reduce losses. So while this latest premium increase will provide some breathing space, it won’t be enough to stop the bleeding,” Sitaraman said.

The agency said the latest increase, coupled with the recovery in auto sales, is likely to result in 12-13 percent growth in third-party auto insurance premiums, which account for one-fifth of the general gross written premium. insurance sector.

On the other hand, claims from most insurers have risen since the second quarter of the previous fiscal year, following the easing of lockdown restrictions and the reopening of offices.

The claims ratio is estimated at about 85 percent for the last quarter of fiscal 2022, up from about 78 percent in fiscal 2021, and is expected to remain at similar levels through this fiscal year, the report said.

The claims ratio is the percentage of claims in relation to earned premiums.

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