Potential Insurance Premium Increase for Vehicle Owners in FY26
Vehicle owners in India may soon face higher expenses for third-party motor insurance as the Ministry of Road Transport and Highways is considering a proposal to increase premiums by 18-25% for the financial year 2025-26. This potential hike, recommended by the Insurance Regulatory and Development Authority of India (IRDAI), marks the first significant revision since FY18.
Background of the Proposed Premium Increase
The IRDAI’s recommendation comes amid rising claim costs and inflation, which have impacted insurers’ financial margins. Despite stable net claim ratios of around 82% in FY23 and FY24, ultimate claim ratios have risen to 88% and 91%, respectively. Industry leaders argue that this increase is necessary to maintain financial sustainability in the face of growing compensation payouts in accident-related cases.
![‘A man filling out a car insurance form’][https://akm-img-a-in.tosshub.com/indiatoday/images/story/202506/bangalore-traffic-110726613-16x9_0.jpg?VersionId=UPYb9VM9CsWHX8H.P9dIUgdzmlu7CMFT&size=690:388]
Impact on Different Vehicle Categories
The proposed increase varies across different vehicle categories. While the average hike is projected at 18%, certain categories may see increases of up to 25%. This change will affect various vehicle types, including two-wheelers, private cars, and commercial vehicles. For example, third-party insurance premiums for small cars (up to 1,000cc) could rise from Rs 2,100 to Rs 2,500, while those for mid-sized cars (1,000-1,500cc) may increase from Rs 3,400 to Rs 4,000.
Industry Response and Regulatory Efforts
Insurance industry leaders have been signaling the need for a premium revision. During an investor call in March 2025, ICICI Lombard’s MD and CEO, Sanjeev Mantri, indicated the likelihood of a premium adjustment in the upcoming fiscal year. Insurers such as New India Assurance and Go Digit have reported increased claim burdens, with incurred claim ratios reaching 102% and 65%, respectively, in Q3 FY25.
In a related development, the regulator has directed insurers to ensure adequate coverage for underpenetrated vehicle categories, including tractors, goods carriers, and private cars in rural areas.
Conclusion
The potential increase in third-party motor insurance premiums highlights the evolving landscape of vehicle insurance in India. As the industry navigates rising claim costs and inflationary pressures, vehicle owners should prepare for possible adjustments in their insurance expenses starting FY26.
