Indian Insurers Face Challenges Amid Stagnant Third-Party Vehicle Insurance Rates
Mumbai: General insurance providers in India are grappling with increasing underwriting costs, as a nearly three-year freeze on third-party (TP) vehicle insurance rate hikes strains their profitability. With inflation impacting operational expenses, insurers are finding it difficult to sustain business in this segment, potentially leading to a shift in focus towards other, more viable, insurance products.
India mandates third-party vehicle insurance for all motorists, covering damages or injuries caused by the policyholder to others. The Insurance Regulatory and Development Authority of India (Irdai) typically revises TP premium rates every one to two years under the Motor Vehicle Act. However, the last rate adjustment occurred in June 2022.
Following the COVID-19 pandemic, India saw a temporary surge in motor insurance policy sales, driven by increased new vehicle sales. However, the growth pace has since moderated, partly due to the static TP policy rates. According to a recent CareEdge report, motor insurance premiums in India increased by 8.6% year-on-year to ₹80,882 crore between April 2024 and January 2025. This increase is significantly lower than the 14% growth seen in the same period during 2023-24.
“There is a clear need to increase overall TP premium rates while recalibrating rates within the TP tariff sub-segments,” said Mayur Kacholiya, head–motor product and actuarial at Go Digit General Insurance, advocating for a “targeted recalibration.” Kacholiya added that “The current rate adjustments have not kept pace with the rising severity of claims, and there exists a significant cross-subsidy across different TP rate classes. Without recalibration, underwriting losses will continue to escalate.”
Go Digit’s loss ratios in the December quarter reflect the strain, with motor own damage insurance policies at 69% and motor third-party vehicle insurance policies at 65%, compared to 64% and 61% respectively in the same period a year ago.
Industry experts note that TP vehicle insurance premiums depend on various factors, including the cost inflation index, claims ratios, and underwriting loss data of all motor insurance companies operating in India. Kacholiya stated that the annualized rate hike for private cars and commercial vehicles has been less than 1% over the past five years, while for two-wheelers, it has been 2-4%. In contrast, the inflation rate for the severity of TP vehicle insurance claims is 8-12% per annum, creating an imbalance that hurts underwriting profitability.
Amit Chhabra, chief business officer – general insurance at Policybazaar, believes that TP vehicle insurance premiums should increase by approximately 20%. He stated, “If you look at it in conjunction with inflation, CPI (consumer price index) inflation has gone up by around 20% over the past 3-4 years. Medical inflation growth has been even higher at 12-14% per year.”
A Divided Response
Some industry experts suggest the government consider increasing TP vehicle insurance premiums for goods-carrying vehicles with a capacity above 12 tonnes and two-wheelers with 150-350 cc engine capacity to align with the inflation in claim severity. They also propose increasing rates for private cars with engine capacity below 1,000 cc, intercity passenger-carrying vehicles, light commercial vehicles, and medium commercial vehicles.
Pavanjit Singh Dhingra, joint managing director, Prudent Insurance Brokers, pointed out, “Even after the previous revision in TP motor insurance premiums in June 2022, it was clear that the increase would not fully cover for underwriting losses being incurred by motor insurance providers in the country. Quite understandably, this position has been aggravated even further in the present scenario.” He also mentioned that in June 2022, the government had increased TP vehicle insurance premiums by 6% for private cars and 12-22% for motorcycles.
However, Sumit Bohra, president of the Insurance Brokers Association of India (IBAI), believes existing premium rates are reasonable and attributes underwriting losses to the longtail nature of the TP vehicle insurance business, which requires high provisioning. Provisioning refers to the mandated amount of capital that insurers need to set aside. Bohra stated, “It is difficult to make underwriting profits unless you start reversing the provisions after a certain period basis the claims experience. As the company grows old the underwriting profits will be visible on reversal of excess provision. TP premium should remain stable for one more year.”
The Call for Recalibration
The revised Motor Third Party Regulations, introduced in June 2024, are intended to further the government’s goal of ‘Insurance for All’ by 2047. These regulations directed all general insurers to prioritize increasing the number of insured vehicles and their market share across key motor vehicle categories. The government expected that by expanding their customer base, insurers would have more opportunities to sell additional insurance covers that could offset the underwriting losses associated with pure TP vehicle insurance policies.
However, industry executives warn that inadequate premium rates could prompt insurance companies to shift their focus to more financially viable segments. Anup Rau, managing director and chief executive officer of Future Generali India Insurance, said, “It is time to recalibrate TP rates because you see distortions in the market and it is going to become less and less viable for insurers. 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.”
