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Now, pay more for auto insurance

Last updated on: January 10, 2012 14:06 IST

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Niladri Bhattacharya in Mumbai

Be prepared to shell out more to insure your car.

Come April, insurance companies are set to increase premium rates across the motor portfolio, which includes private and commercial vehicles.

According to industry sources, the worst-hit would be commercial vehicles, where the premiums might go up 40-50 per cent.

For private vehicles, the increase in premiums could be between 20 and 25 per cent.

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The premium revision is being contemplated to offset the losses on account of increased provisioning norms for commercial third party motor portfolio, say insurance officials.

As an immediate measure, insurers will hike the 'own damage' or OD cover rates by 25-30 per cent. 

Motor insurance consists of two parts -- own damage liability and third party liability. OD is not regulated, unlike third party rates, and insurers are free to price risks.

Third party constitutes 35 per cent of motor policy premiums, and the rest is OD.

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"OD rates will also go up along with the third party rates," said a senior official at a state-owned general insurance company.

"It's not only the commercial vehicles where the loss ratio is high, for the other vehicles also the loss ratio are in the region of 65-100 per cent, varying across companies.

"Ideally for private vehicles, the rates might go up by 20-25 per cent."

Last week, the Insurance Regulatory Development Authority has raised the provisioning on the commercial third party motor pool for 2010-11 to 213 per cent from 153 per cent.

Initial industry estimates indicate that the general insurance industry is staring at a loss of Rs 7,000-8,000 crore (Rs 70-80 billion) in the current financial year because of this higher provisioning requirement.

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Last year the industry took a hit of Rs 10,250 crore (Rs 102.5 billion). 

Last April, Irda increased the third party premium rates by 10-70 per cent across all private and commercial vehicles after the regulator raised the provisioning norms for the third party loss to 153 per cent from 130 per cent for 2010-11.

Besides, the insurance regulator also devised an index based on which the third party rates would be revised annually.

"Last year, taking the loss ratio at 153 per cent, the premiums for commercial third party was raised by around 70 per cent," said a senior official at a general insurance company.

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"So with the revised loss ratio of 213 per cent, rates should increased by another 40-50 per cent over and above last years increase."

An official at General Insurance Council, the representative body for the sector, said: "As Irda has already devised an index where the parameters such as average claim cost, frequency of claims and cost of inflation index, the third party premium rates will have to go up accordingly.

"The industry has sought time from the regulator, where we will be taking up these issues."

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Motor portfolio constitutes 43 per cent of premiums but is plagued with high losses, particularly due to third party claims.

The loss ratio is estimated at 180-213 per cent.

According to Irda figures, premiums collected by general insurance companies by writing motor polices in April-September stood at Rs 10,872.52 crore (Rs 108.72 billion), up 31.58 per cent from Rs 8,262.68 crore (Rs 82.62 billion) in the corresponding period a year ago.

Of this, OD premiums stood at Rs 6,421.46 crore (Rs 64.21 billion), and Rs 4,451.06 crore (Rs 44.51 billion) was third party premiums.




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