Third party insurance premium for small cars set to be higher from April

The Insurance Regulatory and Development Authority (Irda) has proposed a steep 107.79 per cent hike in third party insurance premium for small cars (less than 1,000cc) while reducing rates for some categories of trucks from April onwards.

Simply put, owners of Tata Nano will be paying Rs 426 more as third party premium than the owners of Tata Bolt - both from Tata Motors.

The premium increase for two wheelers ranges between 14-32 per cent for vehicles with engine capacity of 75-350cc whereas there is a decrease of around 61 per cent in premium for vehicles with engine capacity over 350cc.

In the case of trucks (public carrier), third party premium has been proposed to be reduced by around 14 per cent for vehicles with a gross vehicle weight (GVW) not exceeding 7,500kg and 20 per cent for vehicles with GVW of over 7,500kg but less than 12,000kg.

According to Irda, the average compensation paid as death claim is going up.

For the year 2012-13, the average death claims paid were Rs 545,174 and for 2013-14 the number was Rs 609,152.

Irda said the death claim size on policies issued during 2014-15 and 2015-16 that would be settled over next 8-10 years is expected to be higher.

Interestingly, the regulator has arrived at the average, taking into account the number of claims paid over Rs one lakh and not those claims where the settlement is less than the amount.

Furthermore, Irda has not taken into account the investment income earned on the third party premium earned and also on the amount set aside towards claims reserve during the long pendency of the claim.

Reacting to the proposals KV Lakshmanan a private sector employee said: "India is the largest market for small cars and two-wheelers. Further the owners do not have collective voice. It is an easy target segment for insurers to hike the premium and reap a bumper harvest."

The insurance regulator has called for comments on the proposals from stakeholders by March 20, 2015.