Insurance sector regulator IRDA today floated a draft proposal seeking to raise premium rates for third party motor insurance cover for the fiscal beginning April 1, 2015.
"It is observed that there is a high increase in average death claim size for 2013-14 over the previous year, and the increase in average death claim size for the claims arising out of the policies issued in the years 2014-15 and 2015-16 (which would get settled over the next 8-10 years) is expected to be much higher," IRDA said in the exposure draft.
Third party insurance cover is for other than own damage, that is for the vehicle.
This is a mandatory cover, along with the own damage cover, that a vehicle owner has to purchase. This insurance cover is for any collateral damage to a third party, generally a human being, caused due to road accident.
In 2013-14 there was a 12 per cent increase in average death claim size, as per the data from Insurance Information Bureau.
It has invited comments from all stakeholders by March 20, 2015.
IRDA used data of underwriting years from 2007-08 to 2013-14 with respect of number of policies, number of claims and amount of claims paid up to March 31, 2014 for making a case for higher premium towards third party motor insurance.
Following the Insurance Ordinance, the Insurance Regulatory and Development Authority of India (IRDA) has clarified that each general insurer has to ensure third-party cover is made available to the insured in proportion of its market share.
The new provision would increase their underwriting losses, prompting them to seek a hefty hike in the premium payout.
"General insurers have to do the third-party motor business mandatorily to the proportion of their market share. If one company has 10 per cent market share, then this cover must also be in that proportion," IRDA Chairman T S Vijayan had said last month.
For general insurers, the third-party motor portfolio is a loss-making business as claims exceed the premium collected.
In total, every year the industry is burdened with loss of Rs 7,000-8,000 crore on account of this, impacting their overall profitability.
