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The Insurance Regulatory and Development Authority of India (IRDA) has said that third party insurance premiums for bikes, cars and commercial vehicles will not be hiked for this financial year.



Insurance premiums are usually raised by 10-40% every year. This year, insurance rates were expected to go up by 20-30% unlike the previous year which saw rate cuts ranging from 10-20% for bikes, cars and taxis.

According to a media report, a notification regarding the same has been sent out to insurance companies. Therefore, insurers shall charge customers as per the current rates. Third party insurance rates for small mopeds, scooters and two-wheelers with engine capacity below 75cc is Rs. 427, for 75-150cc is Rs. 720 and for 2-wheelers above 150cc is Rs. 985. Premium rates for small cars is Rs. 1,850, for SUVs above 1,500cc is Rs. 7,890 and for sedans between 1,000-1,500cc is Rs. 2,863.

The insurance rates for taxis and small commercial cars is Rs. 5,437 and for entry-level sedans is Rs. 7,417 per year. Third party insurance premiums for Rickshaws and e-rickshaws is Rs. 2,595 and Rs. 1,685 respectively.

Source: Business Today

Link to Team-BHP News

Good. In other words the Premia are matching the claims, as was expected a few years ago.

I hope this also results in reduction (or at least no inflation) in comprehensive premia. Let us wait and see.

How do we know this? I know that IRDA collects very detailed policy and claims data from insurance companies, but that doesn't mean this policy is data-driven.

At the most basic level, the risk of getting into an accident varies based on where you live. For example, if you live in Chennai, the likelihood of an accident is high, but if you live near Pokharan in Rajasthan, there aren't very many things you can bump into. Having worked in ratemaking, this decision seems without nuance. It will have unintended consequences like insurers withdrawing from some markets i.e. basically if they can only charge you a predetermined fee, they can simply choose not to insure you.

General Insurance in India has been running at fairly high combined ratios ((claims + expenses)/(premium earned)). The entire General Insurance industry has been running at a combined ratio of north of 100% till 2017. I don't have any data for 2018. A combined ratio of 100%+ means the company will lose money if they don't get any investment income (which they do). In mature markets like the US, combined ratios are in the range of 90-95% for general insurance. Further, there is cost inflation to consider (i.e. cars aren't getting cheaper to fix).

Anyway... while this may be beneficial to us consumers, it doesn't look like a well thought out decision to me. There are likely to be unintended consequences for companies and for consumers looking for guys willing to insure their vehicles.

What a welcome bit of news! I don't remember the last time I read about 3rd party premiums NOT going up :). Some of us pay really stiff premiums for 3rd-party insurance on our old cars (my Jeep with a book value of 0 still requires a 10k insurance policy).

Thanks for the very insightful post. I don't understand why our insurance premiums aren't influenced by where we drive, where we park, our driving records, age etc. Insurance companies really ought to start using "big data" to decide on premiums.

If your book value is 0, your comprehensive premium should be low. Your third-party risk is still the same as a guy driving a new Jeep (maybe even more because new Jeeps have ABS, stability control etc.)

I guess the principle behind not using past data (assuming available) for future premium calculations is the same as not using past returns data for judging the attractiveness of an investment. Usage based insurance exists though (not in India), based on mileage. Metromile is a name that I can recall. They charge a base fee and then multiplied by number of miles. Initially they were tracking mileage through their own device installed on the car. Not sure how they do it now.

The issue with using factors such as age, location etc is that one can argue both ways. Young chap? Loads of adrenaline = high risk. Old chap? Poor reflexes = high risk. It's just my guess though. Insurers may view it differently.

Past returns may not be indicative of future results in investing. However, it works just fine in insurance and it has been proven. Things change fairly slowing in the world of auto risk. If a certain city has been hazardous in the past, the underlying conditions that make it so won't suddenly change next year.

Regarding age... you are right. Young AND old guys are risky. Middle-aged guys... good. In the USA, women typically have lower premiums than men. In fact, they use credit rating in the USA to calculate your premium. Chaps with good credit rating tend to be less risky on the road.

Again... all of this is proven by data. Mispricing premiums causes a doubly whammy for insurance companies. One... claims may end up being higher than premiums collected (recipe for bankruptcy). Two... if your premiums are mispriced lower and your competitors are not, you will attract more risky customers than good ones.

Insurance pricing is pretty sophisticated in the USA. Each company has to file their ratemaking algorithm with state insurance regulators and that document can sometimes run into more than a 100 pages.

About time too. The insurance companies had been hiking TP rates like crazy over the last many years. Reason cited was increase in claims, though its not sure how much of truth there is in it.

As an eg., I paid around Rs1200 as TP premium for our sub-100cc Scooty Pep last month. :Shockked:
In contrast IIRC, the TP premium of my 100cc HH-CD100 in mid-90s was just 100 odd rupees.
Yes, inflation and all that, but still the year-on-year hikes have been too much.

What irritates me even more is the idiotic CC-based premium criteria for cars.


So the moment a car's engine displacement crosses 1500cc, it turns into a mad monster wreaking havoc on the roads, and thus requiring 3times the insurance premium of a sub-1500cc car ? What crappy logic is that ?

@GTO, that's the reason why your Jeep's TP premium is that high. Same for my 1600cc Baleno.

This 3 times formula for cars with engines> 1500cc has been around for a long time.

Absolute crap logic.

I have heard that in the UAE, the Maximaa used to command the highest insurance premium due its high potential of getting into accidents, ostensibly due to its high power/weight ratio.

I believe the insurance rates should be based on which car bled the insurance companies most rather than the cc of the engine of the car.

It is perfectly legitimate logic. The guys who do ratemaking build models using possible risk factors. Sometimes, stuff like make and model may not be useful to build a pricing model because there may not be sufficient cars on the road. So they use proxies like engine capacity. Cars with larger engine capacities tend to be larger, go faster and generally cause more damage than cars with smaller engines. It is is also likely that cars with larger engines are driven more (i.e. more kms per year). Asking a customer to estimate how much he is going to drive is extremely unreliable - how many of us will tell the truth? All these factors drive up the risk of getting into an accident as well as the third-party claim associated with it.

The IRDA actually has the data on premiums collected and claims paid. They can very easily tell whether an insurance company is gouging. Further, as I pointed out in an earlier post, most insurance companies don’t make an underwriting profit on their auto business.

Just because we don’t like price increases doesn’t mean someone is cheating you.

I have no issue with the cc-model they use to assess risk. My grouse is :
If they have a sub-1000cc group and a 1000-1500cc group, why not a 1500-2000cc group with a similarly pro-rated higher premium, followed by 2000-2500cc and so on ? How logical is to group a 6L 91bhp Baleno alongside say a Merc costing 50L ? Or to club it with an Innova taxi that would probably do 3-4times the kms a privately owned sedan would.

I understand that price rise is inevitable and I don't equate that to cheating. Just that the quantum of increase & the frequency of increase (annual) over the past decade or so doesn't really match with reality.

And if as you say it is a normal price increase, how come they didn't increase premium this year and the year before ? Did claims go down during this period?

To give another example, take the current Digital TV scam. In the guise of giving the viewer control over the channels he watches, the operators have scammed the users. This isn't with just one provider, but folks are complaining across the board.

I used to have a package with Asianet with a monthly bill of Rs370. With the new scheme, they just renamed the packages and I chose a similar one costing Rs390 - I thought its only 20bucks, let go. But when the monthly bill came, its Rs499 and their call-centre can't explain why this increase. To add insult to injury, the channels we were getting earlier are not viewable any more. This isn't price increase, this is cheating. And oddly by the regulatory authority.

I can't explain the erratic price changes. I do know however, that auto insurance companies have not made an underwriting profit for a long time. Meaning, whatever they are charging now isn't enough to cover their costs. This isn't scalable.

I am sure most of us would agree that fixing cars has become expensive. Further, a big part of third-party risk is the value of life in case a death happens. Death compensation is a function of the expected income the victim would have earned for the rest of his life. And this liability is not capped. So, if the CEO of a company gets hit by a car and dies, the insurance company may have to cough up several crores in compensation. The number of road deaths has only been going up.

I agree that this 1000cc, 1500cc segments seem arbitrary. Perhaps it is an attempt by our government to deter people from buying anything but an Alto.

https://www.moneycontrol.com/news/bu...8-3394491.html

https://economictimes.indiatimes.com...w/64286586.cms

I have a Hyundai Verna fluidic 1.6 and my friend has a Honda City I VTEC. I pay 10000/ all inclusive for 3rd party alone while he pays a mere 3300/. How is this justified for an extra 91 cc of engine capacity?
This is just absurd.

Also I have much better driving record than my friend - I have claimed zero insurance in last 13 years while my friend has been making claims every 2-3 years.
Why no benefit of being a good and safe driver?

For above case, it is difficult for me to to come to terms with 3 times premium. My car is not a bus or a truck that is more riskier to others than a Honda city.:deadhorse

And mind it, there has been an insane increase only on 1500 cc plus. When I bought the car, the 3rd party premiums were comparable between the two cars. So, can't tell me that I should have thought before taking the car.:Frustrati

Such problems exist everywhere. For example, if you consider income tax slabs, there is a rise in tax as income rises.
This problem is due to the huge increase in premium once you cross the 1500cc slabs. Most likely these slabs must have been designed when the 796cc Maruti was ruling the markets.
The companies instead can make more slabs, like a new one between 1500cc and 2000cc, and 2000cc and above.
The govt should realize cars are no longer a luxury item but a necessity, and should taxing cars accordingly.

The income tax analogy is not the right one, though there could be other suitable examples.
In income tax, when the slab changes one is taxed at higher rate only for the amount above previous slab. Here, that kind of method is not used.
Also, 5 years back these slabs were very comparable for 1.5 ltr above and below segments.