🧭 Context: Four Years of Tariff Freeze and Widening Losses

The Government of India, through the Ministry of Road Transport and Highways (MoRTH), is reviewing a proposal by the Insurance Regulatory and Development Authority of India (IRDAI) to hike third-party (TP) motor insurance premiums by up to 18–25%. This potential revision comes after a four-year freeze on tariffs, during which insurers grappled with escalating claim costs and widening underwriting losses in this mandatory line of business.

🔍 What Is Third-Party Motor Insurance?

Third-Party (TP) insurance is a statutory cover mandated under the Motor Vehicles Act, protecting victims of road accidents caused by insured vehicles. It covers liabilities towards third parties, not damages to the policyholder's own vehicle—that's handled under Own-Damage (OD) insurance.

📈 Why the Premium Hike Is Being Considered

TP insurance has become increasingly unviable due to:

• No significant tariff revisions since 2021

• Mounting claim ratios:

  • Net Claims Ratio stood at 82% in FY23 and FY24.

  • Ultimate Loss Ratio has worsened from 88.3% to 91.3%.

• Rising legal compensation payouts and inflation-driven repair costs.

“A periodic tariff review is essential to maintain solvency and pricing discipline,” said an insurance analyst from a leading general insurance firm.

💰 Breakdown of Proposed Premium Changes

The IRDAI's draft suggests a weighted average hike of 18%, with some categories—especially mid-sized and commercial vehicles—facing up to 25% increases.

🏭 Impact Across Stakeholders

For Insurers:

• TP insurance contributes to over 60% of the motor insurance business and 19% of general insurance revenue.

• Hike would improve combined ratios by 4–5%, aiding profitability.

For Consumers:

• Renewing TP policies before implementation may help retain lower premiums.

• Likely cost pressure on households with mid-size cars or multiple two-wheelers.

For Commercial Fleet Operators:

• Logistics, transport, and taxi aggregators may face significant increases in operating costs.

🛣️ Policy Recommendations Going Forward

While the current hike addresses immediate solvency concerns, regulators could consider:

1. Annual automatic adjustments indexed to inflation or claim ratio.

2. Telematics-based pricing for private vehicle TP insurance (already adopted in the UK and US).

3. Reward-based pricing for safe drivers to reduce the moral hazard.

📅 Next Steps and Timeline

✅ Conclusion

The government’s potential approval of an 18–25% hike in TP motor insurance premiums signals a pivotal shift after four years of regulatory inertia. As claim costs surge and underwriting losses deepen, this adjustment could rebalance the scales for insurers. However, the impact on consumers—especially commercial users—necessitates a long-term, structured tariff framework with annual rebalancing and tech-driven personalization.

✅ Snippet

“The last formal attempt to revise TP motor insurance came via the MoRTH draft notification for FY 2022–23, which provided new actuarial-based rates and opened a consultation window in March 2022. View draft notification (PDF). Earlier, the IRDAI’s March 2020 circular under Section 147 had extended the FY 2019–20 TP rates indefinitely.