Third-Party Motor Insurance May Increase from April 1, 2022

As per Motor Vehicles Act 1988, the third-party insurance cover is mandatory to drive your vehicle on a public road. Driving without a valid motor insurance policy is considered a criminal offence, and your vehicle's registration will be temporarily cancelled until you buy a valid policy. Besides, it can lead to heavy penalties and imprisonment of the vehicle owner. Third-party car insurance financially protects you against any third-party damage, loss of property, death, or physical injury caused by your vehicle. However, it does not cover the loss or damage caused to your own vehicle. Comprehensive motor insurance gives you all the benefits of third-party insurance as well as protection to you and your vehicle caused by an accident, theft, burglary, fire, explosion, transport, etc. Many vehicle owners buy only third-party motor insurance because it is considerably cheaper than comprehensive motor insurance. Ideally, it is advisable to buy a comprehensive motor insurance policy to secure your vehicle from unforeseen events to fulfill all your motor insurance needs. Click here to know the 9 simple tips to save on your car insurance premium.

Earlier the third-party insurance premium rates were notified by the IRDAI. Every year the insurance regulator reviews the loss ratios of the motor insurance companies and the total number of claims raised by the car owners. Considering the profits or losses and the number of claims, the premiums for the next financial year are declared. This is the first time that the Union Road Transport Ministry (URTM) will notify the revised rates in consultation with the insurance regulator.

According to the proposed rates, private cars with 1000 Cubic Capacity (CC) will attract third-party insurance premium rates of Rs 2,094, compared to Rs 2,072 in Financial Year 2019-20, while private cars with 1000 CC to 1500 CC will attract premium rates of Rs 3,416 compared to earlier Rs 3,221 and private cars above 1500 CC will attract third-party insurance premium rates of Rs 7,897 compared to Rs 7,890 in 2019-20.

The third-party insurance premium rates for two-wheelers of less than 75 CC may see a hike of 12%, whereas the premium rates for two-wheelers between 75 to 150 CC are likely to be decreased by 5%. The premium rate for two-wheelers of 150 CC to 350 CC may see a hike of 15%, and the rate for two-wheelers exceeding 350 CC may increase by 21%

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Here are the proposed changes in the premium rates for Financial Year 2022-2023:

As per the law, the new vehicle owners have to purchase a long-term insurance cover of 3 to 5 years. The IRDAI had not revised the long-term premium rates for new vehicles since Financial Year 2019. But this time, the insurance regulator plans to hike long-term premiums for both new two-wheelers and new four-wheelers categories.

The long-term third-party insurance premium rates for new two-wheelers of less than 75 CC may see the highest rise of 178%, whereas it is likely to see the rise of 17% for two-wheelers between 75 to 150 CC, 35% for two-wheelers of 150 CC to 350 CC, and 16% for two-wheelers exceeding 350 CC.

In the four-wheeler category, the most affected category would be the small cars category of less than 1000 CC as these car owners will have to pay 23% more for third-party insurance at the time of buying the car. Moreover, new cars have higher Insured Declared Value (IDV), which ultimately makes the premium for a new car more expensive compared to the older cars.

Here are the proposed changes in the long-term premium rates for Financial Year 2022-2023:

As per the notification issued by the Union Road Transport Ministry, a discount of 15% is proposed for private electric cars, electric two-wheelers, electric passenger-carrying vehicles, and electric goods carrying commercial vehicles. It has also proposed a discount of 7.5% for hybrid electric vehicles.

Would it impact the automobile industry and insurance sector?

Although the hike in the premium rates of four-wheelers is nominal, there is a substantial increase in the premium rates of the two-wheelers, especially the low-cost scooters and bikes of less than 75 CC. Many experts believe that although the hike seems nominal, it can affect the demand considering the upfront payment for five years along with the GST. The automobile industry has been witnessing a prolonged slump, and the increase in the premiums can further hit vehicles sales and may also impact the insurance sector. However, to know how exactly it would impact the automobile and motor insurance sector, we need to wait until we get the final circular.

Warm Regards,
Ketki Jadhav
Content Writer