Strap: Few months ago, several insurers had reduced premium rates for the private car segment by 5-15%

In its latest circular, Insurance Regulatory and Development Authority of India (IRDAI) has proposed for reduction in rates for motor third-party for the next financial year. During the start of the current calendar year, several general insurance companies had reduced their premium rates for private cars by 5-15%.

The revision in the rates from the next fiscal is for private cars not exceeding 1000cc and two-wheelers not exceeding 75cc, while rates for other vehicles types have remained same as this year. For example, private cars whose engine capacity does not exceed 1,000cc, the regulator has proposed to decrease the premium to Rs 1,850 for 2018-19, from Rs 2,055 in 2017-18. Two-wheeler premiums below 75cc will be priced at Rs 427 for next financial year, against Rs 569 in the current fiscal. In the above 150cc category, there is a marginal rise from Rs 887 in FY18 to Rs 985 for FY19. For motorcycles above 350cc, it has proposed to raise the premium from Rs 1,019 in FY18 to Rs 2,323 for FY19. 

This move will propel policyholder to continue buying the policy. It is seen that, after fist few years, many people don't renew their policy which leads to multiple issues in case there is claims. This is good news for private car owners and people having two-wheelers as this will reduce the burden on their pockets. The regulator also decided that MTP premium rates for private cars in the 1,000 to 1,500cc category and above 1,500cc, as well as two-wheelers between 75cc and 150cc, will have the same premium rates during the next financial year. On the other side, premiums for luxury cars the premiums have been increased.

The regulator takes into account the ultimate claim costs for each accident year and gross premiums. Then, the Ultimate Loss Ratio (ULR) for each of the accident year is calculated. The period this time under analysis was financial year 2011-12 to 2016-17. Few months ago, several insurers had reduced premium rates for the private car segment by 5-15%. The premiums were reduced because insurers are saving on costs after introduction of the motor insurance service providers (MISP) circular, which capped distribution commissions.

The insurance regulator had capped the distribution fee that can be paid to auto dealers at 22.5% for two-wheelers and at 19.5% for four-wheelers and sports utility vehicles (SUVs). Earlier, insurance companies used to pay distribution fee in the range of 25-30 % across segments. This commission structure is applicable only on premium charged towards “own damage”. Premiums of comprehensive motor insurance policies have two components — third party and own damage.

With such reduction motor owners should use the savings to buy add-on features that will result in cost saving for them in case of a mishap. Policyholder should buy add-on covers or riders with the money they save by way of premium reduction. Engine cover, zero depreciation cover, roadside assistance and towing are some of the add-on covers and features that policyholders are likely to find useful.