Proposed insurance premium hike not justified: Experts


Chennai: Automobile associations and insurance industry experts contend that there is no justification for the across-the-board hike in the third party vehicle insurance premium, especially for small cars and two-wheelers.

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They also demand that the non-life insurers be allowed to fix the third-party vehicle insurance premium rates than be subjected to administered pricing mechanism.

The Insurance Regulatory and Development Authority (IRDA) recently proposed a revision in the third-party insurance premium for all categories of vehicles effective from the next fiscal.

The hike proposed for small cars with engine capacity up to 1,000cc is around 85 percent, while it is 43 percent for cars with engine capacity of over 1,500cc. For cars with engine capacity between 1,000cc and 1,500cc, the proposed hike is 1.41 percent.

However, the less than 1,000 cc car segment forms the bulk of the passenger car market in the country.

For two-wheelers, the hike ranges between 14.55 percent and 108.14 percent.

“There is no justification for hike in premium rates for passenger cars. Nobody has correct data for computing the revision,” Nitin Dossa, president, Federation India Automobile Association (FIAA), told IANS over phone from Mumbai.

The IRDA has proposed the hike based on the data with the Insurance Information Bureau (IIB).

“The data provided by IIB does not seem to justify hike for private cars and two-wheelers as the companies have positive claims experience.

“For instance, the incurred claims ratio (total claims reckoned) in respect of private cars for the years 2007-08, 2008-09, 2009-10 and 2010-11 are just 77.57 percent, 71.55 percent, 57.86 percent and 90.11, respectively,” said K.K. Srinivasan, former member of IRDA, citing data available on IIB’s website.

Industry officials said the claims data taken for premium revision were gross numbers and not the net numbers that factor in the reinsurance receipts on the claims paid, the investment income earned by the companies on the premium and amount provided towards the payment of claim.

Arguing in favour of detariffing (scrapping of premium fixed by IRDA), Srinivasan said: “The point worth noting is that prices for most classes of non-life business have dropped drastically since the tariffs were abolished and pricing freedom was given.”

“It is only in motor that is still under tariff that premium rates have been steadily on the increase with yearly increase which is quite substantial.”

According to him, the continuance of administered pricing (tariffs) for motor third-party risks for all classes of vehicles has deprived vehicle owners of lower prices and led to continuous clamouring by the insurers that the prices fixed by IRDA for motor third party is inadequate.

He also added the assured third-party premiums have taken away or drastically reduced the need for companies to manage motor third party claims.

Voicing his support for scrapping of administered pricing regime Amarnath Ananthanarayanan, CEO of Bharti Axa General Insurance Company Ltd, said: “The advantage of detariffing will be that insurers would move toward risk based pricing. Good risks will get lower price.”

However, citing other lines of businesses like fire insurance which has been detariffed he said insurers have increased the deductibles (the portion of claim that a policyholder has to bear).

He said pricing is a function of the value that a product provides to a policy holder.

Ananthanarayanan said the industry has appealed to the union finance minister to abolish tariff and also the obligatory placement of reinsurance business to General Insurance Corporation of India.