Indian Insurers Face Challenges Amidst Unchanged Third-Party Vehicle Insurance Rates
Mumbai: General insurance companies in India are dealing with increasing underwriting expenses, worsened by a nearly three-year freeze on premium rates for mandatory third-party vehicle insurance. This situation is prompting insurers to re-evaluate their business strategies.
Mandatory third-party vehicle insurance in India covers damages or injuries caused by the policyholder to others. The Insurance Regulatory and Development Authority of India (IRDAI) typically revises these premium rates every one to two years, but the last adjustment was in June 2022. This rate stagnation, coupled with rising inflation, is creating financial strain for insurers.
“There is a clear need to increase overall TP premium rates while recalibrating rates within the TP tariff sub-segments,” stated Mayur Kacholiya, head of motor product and actuarial at Go Digit General Insurance. He emphasized the need for “targeted recalibration” to address escalating underwriting losses.
Between April 2024 and January 2025, motor insurance premiums increased by 8.6% year-on-year to ₹80,882 crore, a slower pace compared to the 14% growth during the same period in 2023-24, according to a recent CareEdge report. The rate of motor insurance premium growth has slowed, potentially due to the unchanged third-party vehicle insurance rates. Go Digit’s loss ratios have also increased, with motor own damage insurance at 69% and motor third-party vehicle insurance at 65%.
Amit Chhabra, chief business officer–general insurance at Policybazaar, suggests a 20% increase in third-party vehicle insurance premiums. He cited a rise of around 20% in the consumer price index (CPI) over the last 3-4 years and even steeper medical inflation growth of 12-14% per year as contributing factors necessitating the increase.
Industry Divided on the Path Forward
Some experts suggest increasing premium rates for specific vehicle categories, such as goods-carrying vehicles over 12 tonnes and two-wheelers with 150-350 cc engines. They also propose rate adjustments for private cars with engines below 1,000 cc, along with intercity passenger, light, and medium commercial vehicles.
Pavanjit Singh Dhingra, joint managing director of Prudent Insurance Brokers, noted that even the previous rate revision in June 2022 didn’t fully cover underwriting losses. Sumit Bohra, president of the Insurance Brokers Association of India (IBAI), believes the current rates are reasonable, attributing the losses to the long-term nature of third-party vehicle insurance and the associated high provisioning requirements. Provisioning refers to the amount of capital insurers must set aside for third-party motor insurance policies.
“TP premium should remain stable for one more year,” Bohra added, who is also the CEO of GlobeSecure Insurance Brokers.
Recalibration is Key
To meet the government’s goal of ‘Insurance for All’ by 2047, the revised Motor Third Party Regulations, introduced in June 2024, urged insurers to enhance the insured vehicle count and market share across key motor vehicle classifications. However, executives warn that inadequate premium rates could lead insurers to prioritize other segments.
Anup Rau, managing director and chief executive officer of Future Generali India Insurance emphasized the need for recalibrating the TP rates to avoid market distortions, which might lead insurers to focus on more viable segments. “If these distortions continue, insurers will end up chasing markets which they think are viable from an underwriting perspective and leave the other segments. Finally, it does no service to anyone,” he said.
