Third-party motor insurance premiums could rise by up to 25%, govt review underway: Report

The Ministry of Road Transport and Highways (MoRTH) is actively reviewing a proposal to increase Motor Third Party (TP) insurance premiums, following recommendations from the Insurance Regulatory and Development Authority of India (IRDAI), reported CNBC-TV18.

The proposal suggests an average hike of 18%, with a steeper increase of 20–25% for at least one vehicle category. A final decision is expected in the next 2–3 weeks, after which a draft notification could be issued for public consultation, as per standard regulatory practice.

Why the hike now? Industry pressures mount

Motor TP insurance, which is mandatory under the Motor Vehicles Act, covers third-party liabilities resulting from accidents involving insured vehicles. Despite its significance, TP premiums have remained unchanged for four years, even as insurers continue to face mounting losses in the segment. The industry has been under strain due to rising medical costs, court-awarded settlements, and increased vehicle density on Indian roads.

Financial strain evident in loss ratios

Loss ratios — the percentage of premium paid out as claims — have remained alarmingly high in recent years. According to sources:

• New India Assurance (Public sector) reported a TP loss ratio of 108% in FY25
• Go Digit (Private insurer) posted 69%
• ICICI Lombard reported a TP loss ratio of 64.2%

Such figures highlight the underwriting stress general insurers are facing due to stagnant premium rates.

Impact on general insurance sector

For FY25, TP insurance comprised nearly 60% of total motor insurance premiums and contributed 19% to the general insurance industry’s overall premium income. Given this substantial share, analysts believe that a 20% hike could boost the sector’s combined ratio — a key measure of underwriting profitability — by an estimated 4–5%.

Call for regular revisions

Industry experts have long called for systematic and periodic revisions of TP premiums to align with economic realities. The last revision occurred in 2021, and the subsequent rate freeze has exacerbated margin pressures for insurers. Without regular updates, insurers argue, the TP line becomes increasingly unsustainable.