Hike in third-party motor insurance premium to only partially offset insurers' losses

Mumbai (Maharashtra) [India], June 4 : The Ministry of Road Transport and Highways' recent move to increase the premium on third-party motor insurance after two years is a step in the right direction, but unlikely to fully offset the segment's underwriting losses, CRISIL Ratings said in a report.
"Such losses remain high in motor insurance because the premiums earned on policies are inadequate to pay the claims made by the policyholders. Therefore, any increase in premium helps in reducing losses. So, while this latest increase in premiums will offer a breather, it won't be enough to stanch the bleeding," said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings.
Premiums for two-wheeler insurance have risen the most -- by 12-21 per cent -- across engine capacities.
For private cars, the maximum increase is 6 per cent.
The last time premiums were hiked was in June 2019 and thereafter, policyholders were given some respite because of the COVID-19 pandemic.
The latest increase, combined with the recovery in automobile sales, will likely result in a 12-13 per cent growth in third-party motor cover premiums, which account for a fifth of the general insurance industry's gross written premium, CRISIL Ratings said.
On the other hand, claims incurred by most insurers have risen since the second quarter of last fiscal, following the relaxation of lockdown restrictions and reopening of offices. The claims ratio is estimated at around 85 per cent for the last quarter of fiscal 2022, up from 78 per cent in fiscal 2021 and is estimated to stay at similar levels in this fiscal, the rating agency said.