Govt plans 10% hike in third-party motor insurance premium

MUMBAI: Talks to raise third-party motor insurance premiums have picked up pace again, with the ministry of road transport and highways considering an average increase of around 10%, people familiar with the matter told ET. The increase could be higher in certain loss-making segments, such as commercial vehicles. For categories such as school buses, the increases may be minimal or even held back entirely.

“Talks have resumed between the ministry and the insurance regulator to increase the third-party motor rates, which could go up on an average 10%,” said a source close to the development. “For certain segments like school buses, the hike may be minimal or held back entirely to avoid public backlash.”

Insurers had earlier written to the government and regulator seeking a 5-15% increase starting April 2025, citing mounting pressure from rising court awards, upfront claim payments, and a distorted claims cycle during the pandemic years. “On an accident-year basis, the motor third-party segment continues to bleed. A substantial hike is needed,” a senior industry executive said.

Premium rates for third-party motor cover-mandatory under the Motor Vehicles Act-are revised annually based on historical claims data. The ministry has been mandated to prescribe base premium and liability of an insurer in relation to third-party premium in consultation with the insurance regulator, the Irdai.

But since 2018, increases have mostly remained capped at 2-3%, with no revision in 2021 and only marginal tweaks in 2022 and 2023. The net claims ratio stood at 82% in FY24 and FY23, with ultimate loss ratios of 88% and 91%, respectively.

Currently, a third-party premium for small cars (up to 1000cc) is ?2,100, while the premium for mid-sized cars (1000cc-1500cc) is ?3,400. Insurers collected a total premium of ?54,455 crore under motor third party in FY23-24.The final increase, however, will take effect either in the middle of this financial year or beginning of FY26-27.”There is no provision to revise the rates, retrospectively. The earliest they can implement it is from April 1, 2026, or possibly mid-year from October 1, 2025,” one of the people cited earlier said.

Commercial vehicles have been a particular pain point. Claims have surged due to a mandatory ?1.5 lakh cashless hospitalisation rule for road accident victims during the “golden hour,” regardless of whether the accident involved a hit-and-run or a covered vehicle. “This cashless rule applies to all road accidents. And while the final compensation may take years, the upfront payouts are immediate,” said another executive.