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Motor Insurance Premium Hike Becomes Effective; Here Are The Details

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Recently, the Insurance Regulatory and Development Authority of India (IRDAI) had notified of an increase in premium rates on third-party insurance cover for private two-wheelers and cars for the current financial year 2019-20. The new rates will be effective from 16 June 2019.

The premium across various categories of engine capacities were between Rs 985 to Rs 1,193. The increase was reportedly proposed to curb cost on claims of insurance companies owing to inflation.

Changes
  
 

Changes

Here are some of the important points from the IRDAI notification issued on 4 June.

  • Since third-party insurance is mandatory as per the law in India, insurance companies have to make sure that it is made available at their underwriting offices and through all available channels of distribution including online.
  • Non-availability of insurance or using methods to deny or delay an insurance cover by the insurer will be considered seriously by the IRDAI.
  • Current insurance policies cannot be cancelled or replaced with fresh ones that come with new premium rates.
  • The new rates will have to be prominently displayed at underwriting offices and on the website of insurers so that the public can have access to view it.
Comparison
  

Comparison

Here is a comparison of the old and new third-party motor vehicle premium (source: IRDAI website):

Cars

Engine Capacity Earlier premium rate New premium rate w.e.f 16 June 2019 Increase (%)
Not exceeding 1000cc Rs 1,850 Rs 2,072 21.00%
Exceeding 1000cc but not exceeding 1500cc Rs 2,863 Rs 3,221 12.50%
Exceeding 1500cc Rs 7,890 Rs 7,890 No change

Two-wheelers

Engine Capacity Earlier premium rate New premium rate w.e.f 16 June 2019 Increase (%)
Not exceeding 75cc Rs 427 Rs 482 12.88%
Exceeding 75cc but not exceeding 150cc Rs 720 Rs 752 4.44%
Exceeding 150cc but not exceeding 350cc Rs 985 Rs 1,193 21.11%
Exceeding 350cc Rs 2,323 Rs 2,323 No change
How will your premium burden increase?
  
 

How will your premium burden increase?

The Motor Vehicles Act 1988 requires every vehicle in the country to have a third-party insurance cover.

Until last year, vehicle owners could opt for one-year policies with annual premium charges. However, the IRDAI made it mandatory for four-wheelers and two-wheeler vehicles to have three-year and five-year third party insurance policies, respectively. These policies can be clubbed with damage cover.

After the recently made changes, the biggest hike in premium has been seen on two-wheelers with engine capacity between 150cc and 350cc at 21.11 percent. Among cars, the highest hike in premium was made on four-wheelers with less than 1000cc capacity.

No changes were made on third-party insurance premium paid on cars and two-wheelers with engine capacity exceeding 1500cc and 350cc respectively.

Overall, this may feel like an increase in the burden of premium paid towards third-party as well as own vehicle damage cover. However, vehicle owners usually get a discount on damage cover insurance premium when insurance wasn't claimed in the previous term, on account of holding a good driving record.

A discount is also given on account of the depreciation in car value.

Hence, the drop in damage cover premium should offset the increased burden from third-party insurance.

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