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Decoding hike in motor insurance premium



The Insurance Regulatory Development Authority of India (IRDAI) has proposed to hike insurance premiums of two-wheelers and private cars purchased before 1 September. However, insurance premiums of new private cars and two wheelers sold after that stay put for the on-going financial year. This essentially means that the hike is in the renewal premiums and not the long-term premiums. For cars below 1,000 cc, the premium will go up to 2,120 from 1,850 for the financial year 2019-20 and for cars between 1,000 cc and 1,500 cc, premium has been proposed to be increased to 3,300 from 2,863. Premiums for those exceeding 1,500 cc remains at 7,890.

“The regulator has asked for comments on the circular up till May 29 but the proposed rates are expected to be rolled out only from June 1," said Sajja Praveen Chowdary, headmotor insurance, Policybazaar.com. The regulator has increased the premiums by 15 to 20%. “We had earlier expected an increase of 20 to 25%," said Chowdary.

The regulator proposed an increase to counter the effects of cost increases for the insurers.

“Most cars are less than 1,500 cc and very less are in the category exceeding 1,500 cc and the increase has happened in the first two categories," said Chowdary.

The five-year single premium for new two wheelers for vehicles less than 75 cc is at 1,045, more than 75 cc but less than 150 cc is at 3,285, more than 150 cc but less than 350 cc at 5,453 and for vehicles exceeding 350 cc, the premium remains at13,034.

“Since there is a slight increase in premiums, the customers may buy their insurance plans in the next few months before the plan rolls out," Jain said.

Impact on overall premiums

Your overall motor insurance premium includes own damage premium and third party premium.

“The own damage rates has not seen any upward movement in recent times. So for you, the increase in premium will only be due to any increase in third party rates," said Ghosh.

Keeping the current development in mind, you may think that under all circumstances, your overall premium will increase. However, that is not the case.

You will get a discount on your premiums if you do not claim in the previous year hence the offset.

“Typically for a three-year old car, the split between own damage and third party premium is 60:40. So, for a similar vintage car, a 15% increase in premium will translate into a 6% increase on total premium," said Ghosh.

Source : Live Mint

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