The cost of third-party car insurance coverage for automobiles has experienced a periodic increase. For new drivers and first-time policyholders, these rate adjustments represent a critical financial consideration. In this aspect, we’ll explore recent trends in third party insurance premium adjustments, driving factors of these changes and their specific implications for policyholders.
Changes Third-Party Insurance Mandates and Rates
Regulators and industry stakeholders are currently discussing a revision of base premiums for third-party car insurance online and offline. The Insurance Regulatory and Development Authority of India (IRDAI) has proposed raising third-party car insurance premiums by an average of 18%, with some vehicle types perhaps seeing a more drastic increase of 20–25%. Current fixed premiums for cars with engines up to 1000 cc are approximately ₹2,100, while mid-sized cars (1000–1500 cc) pay about ₹3,400 under the present schedule.
Why are Premiums Being Raised?
There are several interlinked factors pushing the third-party insurance premium hike. First, the loss ratios for third-party motor cover have been high. Here are the few specific reason that influences the interest hike:
- Claim Ratio: In recent years, the net claim ratio stood at about 82% and it has reached about 88 - 91%.
- Rising Claims: The rising cost of repair work, medical claims for accidents and liability payouts has increased the average claim size.
What Does This Mean For First-Time Policyholders?
To a first-time car buyer, the practical implications of these developments are as follows:
- Higher mandatory base cost: Since this third-party element is mandatory, you will probably spend more than you had estimated on the insurance aspect of the purchase.
- Renewal cost jumps soon after purchase: Assuming that you buy today and the increase is to apply next financial year (or mid-year), you may find your first third-party policy renewal premium significantly higher than your initial premium.
- Rebalancing cover choices: Many first-time buyers may respond by re-evaluating their overall cover. To offset the rise in third-party premiums, policyholders can go with comprehensive plans for better financial protection.
- Affordability and finance implications: If a car is under finance, the insurance premium will be included in the monthly payments. An increase in premiums can decrease the net disposable income or increase monthly obligations.
How to Compare Car Insurance Policies Intelligently?
Facing a higher third-party cost doesn’t mean you have no options. Here’s how to approach the market:
- Compare full-cost quotes: Do not only consider the third-party rate. Compare full premiums (third-party + own-damage + add-ons) between insurers to get to know the total annual cost.
- Check insurer service and claim settlement record: Check the claim settlement ratio of your insurers, along with additional features added with comprehensive insurance plans, to select a better car insurance policy.
- Be strategic about add-ons: Add-ons like roadside assistance, zero depreciation, and engine-protection are worthwhile. Adding them with comprehensive insurance can offset the rising cost of insurance with the car insurance policy benefits.
- Use discounts and no-claim bonuses: Many insurers offer discounts for no-claim history (which you will build). Insurers like HDFC ERGO car insurance allow up to 20% no-claim bonus if you do not file a claim for 1 year and a maximum of 50% in 5 consecutive claim-free years.
- Consider policy term length carefully: Read the fine print of each insurance policy to get clarity about the right choice for you.
Checklist For Policyholders
Here is a handy checklist to guide you in selecting the right car insurance:
- Confirm the itemised total annual premium and ask what part is third-party cover (mandatory) versus own damage or add-ons.
- Enquire of the insurer whether there are already pending or probable regulatory revisions in the quoted premium rates.
- Check the application of the no-claim bonus (NCB).
- Know the process of claims by evaluating how to report, required documentation, time limits, network garages, etc.
- Check waiting times and exclusions on any add-ons of choice.
Regulatory Oversight on Car Insurance
Insurance regulators inspect motor insurance to check that all the cars have the mandatory liability cover and that the insurers are conducting their operations within the framework of the law. The amended Motor Vehicles Act states that the legal penalty for no insurance can be a fine of approximately ₹2,000 in the first instance and ₹4,000 in subsequent instances. All these are meant to protect third parties against uncompensated losses and to ensure the financial sustainability of compulsory liability cover provided by insurers.
Final Thoughts
The proposed rise in third-party insurance rates reshapes the cost framework for new vehicle buyers. For first-time policyholders, it implies being more precise with budgeting, that the first-year renewal will be higher, and that they will be more careful in assessing cover options than they were previously. The effects can be positively countered by comparing insurers, comprehending add-on value, and utilising relevant discounts. Through the careful design, the buyers will be able to navigate around the new premium plan without violating the required protection of responsible car ownership.
No VCCircle journalist was involved in the creation/production of this content.
