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Crisil Ratings in its latest report has said the recent increase in the premium rates on third-party motor insurance is unlikely to fully offset the motor insurance segment's underwriting losses. The premium rates for third-party motor insurance have been increased from June 1. 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.

It stated the Ministry of Road Transport and Highways' 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. Third-party insurance cover is for other than own damage and is mandatory (as per the Motor Vehicles Act, 1988) to purchase along with own damage cover. Underwriting losses occur when claims are higher than the premium income of an insurance company.

Further, it said the last time premiums were hiked was in June 2019 and thereafter policyholders were given some respite because of the COVID-19 pandemic. Its Senior Director and Deputy Chief Ratings Officer Krishnan Sitaraman said underwriting losses remain high in motor insurance because the premiums earned on policies are inadequate to pay the claims made by the policyholders. Sitaraman said ‘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.’