The Ministry of Road Transport and Highways (MoRTH), for the second time, will delay the announcement of motor insurance third party premium for FY 2023-24 till June amid proposals from several quarters that the TP premium should be reduced as insurers are making huge profits from delayed claim pay-outs.
Since FY 2022-23, MoRTH has taken over the task of fixing the revised motor TP premium from the insurance regulator IRDAI which used to unveil the draft for revised premium by March second week to be followed by the final rate to be made effective from April 1. However, last year, MoRTH had issued the draft proposal by mid-May and the final rate by June 1.
According to industry sources, MoRTH will follow the same time line for the new fiscal year which effectively means the new rates will not be effective before June 1.
MoRTH had revised the motor TP rates by 5-10 percent for the current year (FY2022-23) and industry sources point out that for the new fiscal also the quantum of hikes will remain the same. However, general insurers demand larger hikes.
Experts argue that there is no scope for hiking the motor TP rates as the insurers earn a substantial investment income from motor premium as the claims after becoming court cases take time to be settled. As more than half of the vehicles plying on the roads are uninsured, a reduction in premium will increase insurance penetration.
Motor TP premium is a profitable cash cow for insurance companies. Last year, TP fetched a premium income of Rs 43,000 crore out of the total motor premium income (including TP and OD, or own damage) of Rs 70,000 crore. “Since April 2023 is around the corner, the insurance industry’s furious lobbying for an increase in TP premium seems to be on. Don’t know if MoRTH will yield to the lobby or protect the hapless policy holders (consumers),” said KK Srinivasan, former Member, IRDAI.
He said the reality is that insurance companies carry humongous reserves for outstanding TP claims which are unlikely to result in ultimate pay-outs of that magnitude. These are huge reserves that produce sizeable investment income for insurance companies. “There is a widespread perception that insurance companies are squandering away income from policyholders’ funds by pay-outs on exorbitant management and administrative expenses and huge payments to intermediaries,” Srinivasan said.
As a matter of fact, motor TP premium rates may warrant a reduction to make it affordable and increase the penetration, he said.
“The government will be careful not to go larger hikes in the days of high inflation which hit the people hard. The hike will be very moderate,’’ said the CEO of a private sector general insurance firm.
General insurers claim that motor TP business is a loss-making business where against a premium of Rs 100, average claim pay-out in the portfolio is more than Rs 140.
Motor TP policy has a provision for unlimited liability and compensation for most accident cases. They are invariably decided by the courts which are liberal in fixing the claim pay-outs.
About 16.54 crore, or nearly 54 per cent, of the vehicles plying on Indian roads are uninsured, Minister of Finance Bhagwat Karad said in Lok Sabha recently. IRDAI recently asked general insurers to talk to transport authorities of 28 states and eight union territories to provide mandatory covers for the uninsured vehicles.
As per the Amended Motor Vehicles Act (MVA) of 2019, the fine for driving without insurance is Rs 2,000 for the first offence and Rs 4,000 for the subsequent offence. It could also lead to imprisonment for 3 months within the law’s discretion. The fine is applicable as per Section 196 for the offence “Driving without insurance”.
