For Insurers, Third-party Motor Cover Gains To Only Partially Offset Underwriting Losses

The Ministry of Road Transport and Highways' move to increase the premium on third-party1 motor insurance after two years is a step in the right direction, but unlikely to fully offset the segment's underwriting losses2.

Says Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, "Such losses remain high in motor insurance because the premiums earned on policies are inadequate to pay the claims made by the policyholders. Therefore, any increase in premium helps in reducing losses. So, while this latest increase in premiums will offer a breather, it won't be enough to stanch the bleeding."

Premiums for two-wheeler insurance have risen the most - by 12-21% - across engine capacities. For private cars, the maximum increase is 6%.

The last time premiums were hiked was in June 2019 and thereafter, policy holders were given some respite because of the Covid-19 pandemic.

The latest increase, combined with the recovery in automobile sales, will likely result in a 12-13% growth in third-party motor cover premiums, which account for a fifth of the general insurance industry's gross written premium.

On the other hand, claims incurred by most insurers have risen since the second quarter of last fiscal, following the relaxation of lockdown restrictions and reopening of offices. The claims ratio3 is estimated at around 85% for the last quarter of fiscal 2022, up from ~78% in fiscal 2021 and is estimated to stay at similar levels in this fiscal.