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With the base premium for third party liability under the vehicle insurance fixed by the Indian government, the general insurance companies want the flexibility to increase or decrease the same by 20 per cent.


The industry also wants the limit to go up to 40 per cent the next year and later for full detariffication.

The industry wants the 20/40 per cent flexibility even as some to the private players are offering discount - cut and pay system- on the government fixed base premium.

The cut and pay system is one where the insurers collect a lower sum than what is stipulated but print the actual premium figure on the policy.

It is learnt a working group on reforms in the general insurance products has suggested to the sectoral regulator on these lines.

According to the industry group, the premium rates are currently based on homogenous sub class i.e. cubic capacity wise for private car and two wheelers.

In the case of goods carriers, it is based on the gross vehicle weight (GVW) and the seating capacity if it is a passenger carrying commercial vehicle.

The rating methodology does not consider any other rating variable like geography, age of the vehicle, segment of vehicle, type of usage etc, the group said.

The frequency of third party claims varies significantly by different factors (e.g. accidents rates in different states are different etc.) which are currently not factored in the current methodology, the industry group said.

According to the group, introduction of more rating factors will lead to lower cross subsidisation which is currently prevalent.

Risk-based pricing will ensure that appropriate premium is charged for relevant risk profile.

For segments where the motor third party risk is better, it might lead to reduction of premium to the customers.

The committee said for segments where that risk is adverse, it might lead to correction of premiums and will ensure insurance industry presence in such adverse location/segment.

This will lead to a better motor third party coverage availability to the customers.

As the base premium is fixed by the central government on industry wide basis, the risk premium for different insurers might differ keeping in view the nature and size of exposure of that insurer into different segments, said the group.

This necessitates a discretion for insurer to make prudent adjustments in premium rates up to 20 per cent - loading or discount- over the prescribed ones to accommodate the business and portfolio strategy of individual insurers.

This limit may be reviewed and enhanced to up to 40 per cent in the succeeding year and consequently to a stage of complete de-tariffication, the committee has suggested.

Contrary to the claims made by the general insurers that they are incurring huge losses under the motor portfolio, the actual numbers as per the Insurance Information Bureau of India (IIB) and studies by industry lobby body General Insurance Council show the contrary.

As per the Indian Non-Life Industry Year Book 2020-21 published by the General Insurance Council, the total premium earned under the motor insurance was Rs 67,389 crore by the industry. The industry invests the sum and earns income on this as well.

The total claims paid during 2020-21 was Rs 28,726 crore towards vehicle damage Rs 17,834 crore, towards third party liability Rs 10,892 crore, netting the industry a whopping surplus of Rs 30,854 crore.

The total number of third party claims settled during the year was 257,165.

The average settlement per claim was Rs 423,541.

During 2019-20, as per the data published by the General Insurance Council, the total motor insurance premium earned by the industry was Rs 68,951 crore -- vehicle damage Rs 26,524 crore, third party liability Rs 42,427 crore.

The total claims paid for 2019-20 was Rs 38,071 crore -- towards damage to vehicles at Rs 20,552 crore and third party liability at Rs 17,519 crore.

The gross surplus was a whopping Rs 30,880 crore.

The total number of third party claims settled during 2019-20 was 403,283 with an average pay out of Rs 434,409.

In its annual report on motor insurance for the 2018-19 fiscal, the IIB said a sum of Rs 35,519 crore of motor claims -- towards vehicle damage Rs 18,262 crore and third party liability Rs 14,257 crore -- were settled during 2018-19, while the gross underwritten premium was Rs 64,522.35 crore.

According to the report, the average settlement amount for death claims during 2018-19 fiscal was Rs 901,207 while for injury claims it was Rs 251,094. The blended average works to Rs 576,150 per claim.

From the numbers above, one can note the decreasing average per claim amount from 2018-19 to 2020-21.

The industry players also claim that a large number of vehicles run on the roads without third party insurance.

However, they do not have any answer when asked how that impacts them as they pay claims only on those policies issued by them and it is for the police to penalise the violators.