Third party premium on bumpy road

The Insurance Regulatory and Development Authority's (Irda) decision to increase third party premium rates in a detariff market from January next year is being opposed not only by truck operators' associations, but also by private car owners.

The third party premium has been increased from the current Rs 700 to Rs 2,500, a 257 per cent hike for private cars, where the cubic capacity of the vehicle exceeds 1,500 cc. Cars, including Chevrolet, Fiat, Ford, Honda, Hyundai, Mahindra, Maruti, Mitsubishi and Skoda, fall in this category.

Private car owners said compared with commercial vehicles that have a third party claim ratio of over 200 per cent, the claim ratio of private cars is much lower. However, the premium for commercial vehicles has been increased by 150 per cent, while that for private cars has been increased by 257 per cent.

The Western India Automobile Association (WIAA), a body of four lakh members from Maharashtra, Gujarat, Madhya Pradesh and Goa, has written to the Irda to reconsider its decision and it will be meeting the regulator shortly.

"Private cars are well maintained and have a third party claim ratio of 40 per cent. Vintage cars are used only in rallies, where the engine capacity is 2,500 cc. Trucks are driven on highways for around 7,500 km a month, while private cars are driven for only 750 km a month. The premium for trucks, buses and commercial vehicles has not been revised in the last 10 to 15 years, since their associations threaten to go on strike, while our premium was increased by 70 per cent based on the recommendations of the Ansari Committee five years ago," said Nitin Dossa, executive chairman of WIAA.

"About 60 per cent of the cars don't go out of Mumbai. Claims due to drunken driving come from tourist cabs and taxis which are few. We wrote to the Irda to include the private car owners' association in committee meetings, considering the increase in premium, but in vain," added Dossa.

Meanwhile, the Delhi Interstate Truck Operators' Association (DITOA) is planning to take commercial vehicles' associations of different states and meet Irda Chairman C S Rao. "If the decision is not reconsidered, we will go on strike," informed J S Chadha, president of DITOA.

For cars, such as Maruti 800, Santro and Getz, where the cubic capacity of the vehicle does not exceed 1,000 cc, the premium has been increased by 34 per cent.

For two-wheelers with cubic capacity not exceeding 75 cc, the hike is 122 per cent, it is 87 per cent for two-wheelers in the capacity between 75 cc and 150 cc, 71 per cent for two-wheelers of capacity between 150 cc and 350 cc and 226 per cent for two-wheelers exceeding 350 cc capacity.

"The idea is that high-value cars contribute to offset the losses from smaller vehicles. Tough premium rates for third party will increase, the rates for own damage will come down substantially and overall premium will still be lower," said K N Bhandari, secretary general of General Insurance Council.

The general insurance industry will be freed from price controls in January next year. Since third party motor insurance is a loss-making business for insurers, the Irda has constituted an India Motor Insurance Pool, where the third party covers will be underwritten on account of the pool.

Insurers will provide the infrastructure with their 5,000 offices and will earn only management expenses. If there is a deficit in the motor pool, it will be shared by the premium an insurer underwrites in the country. As per the law, all vehicles except those of the government should have a third party insurance.