Owners of small cars and two-wheelers stand to benefit from lower motor insurance premiums following a reduction in third-party premium rates by the Insurance Regulatory and Development Authority of India (IRDAI).

Third-party insurance is mandatory for every vehicle owner, both private and commercial. This component covers damage to other people’s vehicles and property in case of an accident. This, along with the own-damage component, makes up the total or comprehensive motor insurance premium. The own-damage component pays for damage to one’s own vehicle or its theft.

Every year in April, the regulator announces third-party premium rates for all kinds of vehicles – private and commercial. This decides the motor premium rates for the year.

This year IRDAI has reduced third-party premium rates for small cars with engines not exceeding 1000cc, such as Alto and Kwid, and bikes not exceeding 75cc[S1] . The rates remain mostly unchanged for other cars, but third-party premium rates for bikes with engines of over 350cc have seen a significant hike.

“Premium rates for small cars have been lowered to Rs 1850 from Rs 2055, a reduction of 10 per cent. For two-wheelers under 75cc it’s been reduced to Rs 427 from the current Rs 569. This works out to a saving of Rs 205 and Rs 142 respectively in case of small cars and two-wheelers of lower engine capacity,” said Devendra Rane, Founder and CTO, Coverfox.com, an insurance broking firm.

However, in case of bikes with engines of over 350cc capacity, the regulator has more than doubled the third-party premium to Rs 2323 from the earlier Rs 1019.

According to Rajiv Kumar, MD and CEO, Universal Sompo General Insurance Company, the 10 per cent reduction in third-party premiums for cars under 1000cc is a step in the right direction. “First-time owners of four-wheeled vehicles come from tier-2 and tier-3 cities and rural pockets, where every penny saved is a penny earned. This segment works tirelessly to own their first car. For these customers, any mandatory added cost becomes a deterrent towards purchase of their dream vehicle. The price revision in the four-wheeler segment is seen as a welcome decision for all stakeholders associated in dealing with this section of customers,” he said.

The reduction in third-party premium rates will also offer insurers a chance to bring down premiums for comprehensive insurance policies. “This should motivate vehicle owners who were previously hesitant in renewing motor insurance due to the year-on-year hike in premiums, especially those residing in tier-2 and tier-3 cities, and rural areas,” said Rane.

Though third-party rates have come down for smaller cars, and been kept unchanged for mid-segment and high-end cars including SUVs, they have been increased for bikes above 150cc because of higher claims in this segment, said Animesh Das, Head – Product Strategy, Acko General Insurance.

Premiums old and new for cars not exceeding 1000cc

Source: Universal Sompo General Insurance

*These are annual premium rates. They can vary depending on the city