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C. Shivkumar

BANGALORE, March 18

MOTOR insurance companies are set to raise tariffs by at least 100 per cent over what has been prescribed by the Insurance Regulatory and Development Authority (IRDA) for the next financial year.

This is being done in a bid to correct some of the contradictions in the new tariff policy for the motor insurance sector and after IRDA clarified some of the misgivings of the insurance industry.

IRDA, in a letter to the All India Motor Transport Congress, had conveyed that the prescribed rates in the next year's policy were only base rates. This effectively implies that insurers would be allowed the flexibility to raise tariffs over and above what has been prescribed. Sources said that these base rates could be raised up to 100 per cent, based on individual insurer's risk assessment.

IRDA had raised tariffs from 1.5 per cent to 1.751 per cent for commercial vehicles. Similarly, for cars the hikes in the new premiums are expected to range between 3.2 per cent and 3.50 per cent, depending on the category of the vehicle from the current level of 2.15 per cent. These hikes have been effected on the basis of the recommendations of the Ansari Committee.

Almost all the insurance companies had been peeved at the initial IRDA notification on the new tariff policy and had felt that it was heavily loaded in favour of the commercial vehicles sector. Most of them felt that the tariff hikes effected were inadequate given the claims experiences in the motor transport sector, particularly commercial vehicles.

Underwriting in the transport sector was a heavily losing proposition, with claims being well over 120 per cent of the gross premium income. These losses included third party liabilities where the claims could technically be unlimited.

Further, the insurance industry had also said that the flexibility for subsidising claims with return on investments had substantially diminished since the beginning of last year. This was because the rates of return had shrunk from around 11 per cent last year to about 8 per cent this year. Further, the returns had also been affected by the low premium income accretion, due the economic slowdown and high claims ratios.

As a result most of them, both public and private sector general insurers, have begun restricting exposures in the commercial vehicles business. In fact, the private sector preferred to completely stay away from the commercial vehicles segment. But the new clarification now implies that almost all the insurance companies will begin loading tariffs on the basis of the claims experiences of the past. Sources now indicate that insurance tariffs could be hiked to factor in the risk elements.

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