Third-party motor insurance premiums are likely to go up soon. The Ministry of Road Transport and Highways is planning to increase the rates, considering ongoing requests and the challenges faced by insurance companies. Rising claim costs and sluggish premium growth have made it difficult for insurers to stay profitable.
Now, the question is when this hike will be implemented — and whether it will genuinely help insurance companies. Let’s break it down.
What’s Happening?
The Ministry of Road Transport and Highways is once again in talks with the insurance regulator to raise third-party (TP) motor insurance premiums by 10%, as reported by The Economic Times. This hike was originally scheduled for implementation on April 1, 2025.
However, as per the latest update, the increase may be higher for certain loss-making categories such as commercial vehicles, while it could be minimal or even paused altogether for segments like school buses.
These discussions have resumed following a formal request from insurance companies, which are under financial pressure due to growing court awards, upfront claim payments, and pandemic-related disruptions in the claims cycle.
Historical Trend of TP Rate Revisions
The Insurance Regulatory and Development Authority of India (IRDAI) revises insurance rates annually based on past claims, in coordination with the Ministry of Road Transport and Highways.
Between FY13 and FY18, TP insurance rates saw sharp hikes. But since 2018, increases have remained relatively low at around 2–3%, with no revision in 2021 and only marginal hikes in 2022 and 2023.
Challenges Facing Insurance Companies
Insurers are facing mounting pressure from rising TP motor insurance claims, stagnant premium rates, and increasing award inflation. Over the past 5 to 7 years, TP premiums have grown by only 2–3% annually, while claim pay-outs have surged at a rate of 11–12% per year — severely impacting profitability.
In FY24 and FY23, the net claims ratio for TP motor insurance stood at 82%, with ultimate loss ratios reaching 88% and 91%, respectively. Some insurers even reported an incurred claims ratio of 102% in Q3, up from 93% the previous year.
Following this, insurance companies wrote to the regulator, seeking a hike of at least 5–15% in TP premiums to restore financial viability in the motor TP segment — especially given the lack of meaningful revisions since FY19.
What’s in it for Investors?
If the proposed hike in third-party (TP) motor insurance premiums is implemented, it could provide significant relief to general insurance companies. According to Mint, third-party cover forms a substantial portion of motor insurance policies, contributing around 60% of the total motor insurance premium. TP insurance also accounts for nearly 19% of the overall general insurance premium income.
For insurers like ICICI Lombard, New India Assurance, and Go Digit, this hike could help stabilise margins, improve profitability, and positively influence their stock market performance.
What’s Next?
As noted by The Economic Times, there is no provision allowing insurance rates to be changed retrospectively — they can only be revised from a future date. The updated rates are likely to take effect either from the middle of the current financial year (October 1) or the beginning of the next financial year (April 1, 2026).
One key area of concern is the commercial vehicle segment. Claims in this category have risen sharply following the introduction of a rule providing Rs 1.5 lakh as cashless hospitalisation for all road accident victims.
The coming months will be crucial as the government and IRDAI finalise the changes and rollout plan.
*The companies mentioned in the article are for information purposes only. This is not an investment advice.
*Disclaimer: Teji Mandi Disclaimer
