The amendment to the Motor Vehicles Act has increased the compensation for accidental insurance to ten-fold i.e. to Rs. 5 lakh. With this change that is effective from May 22 the impact will befall on the general insurance industry. The industry is staring at a loss amounting between Rs. 10,000 and Rs. 25,000 crore in coming years.
Though the onus shall not be immediately passed on to end consumers as higher premium charges and may well be enforced beginning next year. The existing claims that are to be processed will amount to a loss of anywhere between Rs 10,000 crore and Rs 25,000 crore.
If industry experts are to go by, the increase in the premium amount can be anywhere between 20-30% over and above the revision in rates that is done on an yearly basis due to actuarial assumptions as well as portfolio performance.
And the practice is being followed since 2011 of pricing third-party motor insurance premiums on an annual basis instead of the earlier once in five years.
In general the claim process for third-party motor insurance takes longer as the court has the authority to decide the final compensation amount.
And this is done by the regulator IRDA after factoring frequency of claims for each type of vehicle, average value of claims in respect of different vehicle types and inflation.
For the FY 2018-19, the IRDA has decreased premium amount for cars with engine capacity less than 1,000 cc by 11.35%.