Faced with increasing claims, insurance companies are planning to hike premiums for own-car insurance

If you’re thinking of insuring your spanking new car, be ready to shell out more for your own-car insurance. That’s because general insurance companies, which have been hit hard by the double whammy of rising claims and shrinking premiums (due to cutthroat competition after motor insurance was de-tariffed in January 2007), are gearing up to increase premiums for coverage against loss or damage to your vehicle, also called as ‘own-car’ insurance.

“They (motor insurers) are expected to increase their premiums based on the region and their own past experience of various car brands,” said Raj Bora, IFFCO-TOKIO’s vice president for management and corporate planning.

Motor insurance is the biggest revenue earner for non-life insurers, with nearly 60% of their sales coming from this segment. But ironically, it has also been the biggest drag on their profitability due to rising claims from motorists, both for own and third-party damages. While insuring one’s own vehicle from loss or damage is optional, third-party insurance—which covers you against liabilities if you were to get into an accident involving someone else’s vehicle—is mandatory for every automobile. 

With underwriting parties making losses, prices of premiums having come down in the past and with claims rising—all since the de-tariffing of the industry in January 2007, insurance companies have decided to raise their premiums.

Since January 2007, insurance companies were allowed to sell their motor insurance premiums at a lesser rate and provide discounts to their customers, after an Insurance Regulatory and Development Authority (IRDA) order.

However, with falling premium levels and discounts being given to clients, the claim ratios increased, especially on small cars, mid-sized cars and sports utility vehicles (SUVs).

S Sreenivasan, Bajaj Allianz’s chief financial officer said that since January 2007, there was nearly a 40% drop in motor-insurance premiums by insurance companies.

“When de-tariffing of motor insurance took place, the prices fell down tremendously. However, this itself could not be sustained. The simple fact is that claims itself have continued to rise because of inflation,” said Kim Soon, chief operating officer of Bharti AXA General Insurance.

He also added that the structure of motor insurance premiums in the country has added to the problems facing the industry. “In India, if the vehicle is new then the insured declared value (IDV) attracts a higher premium. However, when the vehicle becomes old, then the IDV comes down. Yet, when it comes to claims, the claims cost doesn’t come down.”

Luxury car owners may not have to worry about increase in own-car premiums, because the amount being charged as own-car premium is already high for such vehicles.

For a low-end vehicle like the Maruti Alto which has an average ex-showroom price of Rs2.70 lakh, Bharti AXA has increased its premium for own-car insurance to Rs10,000 from Rs8,500 over the past three-four months.

In the future, insurance companies are also likely to become stricter while settling claims. If you have a bad claims record, then your motor insurance premiums are likely to rise.

With the rising amount of theft in the northern region and increasing amount of accidents in states like Uttar Pradesh and Punjab, insurance companies say that such areas may have to face higher premiums compared to other regions. This region could actually see a rise of own-car motor insurance premiums by at least 5% to 15%, said Ajay Shah, vice president, customer service-motor, ICICI Lombard General Insurance.