Premiums for motor insurance cover to go up
A new directive from the insurance regulator is set to increase premiums for motor insurance cover.
What is proposed…
The Insurance Regulatory and Development Authority, or IRDA, has directed all general insurance companies to maintain a minimum reserve of 150 per cent of the annual premiums they collect. This means that for every Rs 100 of premium an insurance company collects, it should keep Rs 150 in reserve to service any claims from insured parties that may arise. Currently, insurance companies maintain around 126 per cent of all premiums collected as reserves.
However, this reserve, also called the solvency ratio, need not be increased in one go. IRDA wants it increased to 130 per cent by March 31 this year, and then raised gradually to 150 per cent by March 31, 2014. To comply with the IRDA's new rule, insurance companies feel they have no choice but to hike the premiums.
… and the reasons…
The directive came after the IRDA found that the total claim amount paid out by insurance companies in the past three years under the thirdparty motor insurance pool was more than 180 per cent of the total premium collected on vehicles. It then decided that the minimum fund reserve of 126 per cent was not enough and should be raised. There are two kinds of motor insurance cover - cover against damage to one's own vehicle (own damage insurance) in an accident, and third-party insurance, or cover in case the person insured is sued for damages by the other person involved in the accident. Third-party motor insurance is mandatory under Indian law. The guidelines for determining the premium amount are still set by the government. There are no such curbs on determining the premium amount for own damage insurance. All registered general insurers have to contribute to a common pool to service all third-party motor insurance claims that may arise.
… and its impact
"Either the government allows general insurers to increase the premium paid for third-party insurance, or the premium on own damage insurance will have to be raised to bear the extra burden," says Amarnath Ananthanarayanan, Chief Executive Officer, Bharti AXA General Insurance. "Whatever the decision, the premium on motor insurance will ultimately go up." According to Ananthanarayanan, if insurance companies increase the own damage premium, the hike could vary from one company to another. It is estimated that, if the government gives the green signal, third-party premiums could go up by as much as 80 per cent. Since the solvency ratio is to be raised in stages, the premium increase, too, may be similarly staggered.
The Insurance Regulatory and Development Authority, or IRDA, has directed all general insurance companies to maintain a minimum reserve of 150 per cent of the annual premiums they collect. This means that for every Rs 100 of premium an insurance company collects, it should keep Rs 150 in reserve to service any claims from insured parties that may arise. Currently, insurance companies maintain around 126 per cent of all premiums collected as reserves.
However, this reserve, also called the solvency ratio, need not be increased in one go. IRDA wants it increased to 130 per cent by March 31 this year, and then raised gradually to 150 per cent by March 31, 2014. To comply with the IRDA's new rule, insurance companies feel they have no choice but to hike the premiums.
… and the reasons…
The directive came after the IRDA found that the total claim amount paid out by insurance companies in the past three years under the thirdparty motor insurance pool was more than 180 per cent of the total premium collected on vehicles. It then decided that the minimum fund reserve of 126 per cent was not enough and should be raised. There are two kinds of motor insurance cover - cover against damage to one's own vehicle (own damage insurance) in an accident, and third-party insurance, or cover in case the person insured is sued for damages by the other person involved in the accident. Third-party motor insurance is mandatory under Indian law. The guidelines for determining the premium amount are still set by the government. There are no such curbs on determining the premium amount for own damage insurance. All registered general insurers have to contribute to a common pool to service all third-party motor insurance claims that may arise.
… and its impact
"Either the government allows general insurers to increase the premium paid for third-party insurance, or the premium on own damage insurance will have to be raised to bear the extra burden," says Amarnath Ananthanarayanan, Chief Executive Officer, Bharti AXA General Insurance. "Whatever the decision, the premium on motor insurance will ultimately go up." According to Ananthanarayanan, if insurance companies increase the own damage premium, the hike could vary from one company to another. It is estimated that, if the government gives the green signal, third-party premiums could go up by as much as 80 per cent. Since the solvency ratio is to be raised in stages, the premium increase, too, may be similarly staggered.
Courtesy: Money Today
