Motor TP insurance premiums may rise soon after four years of stagnation
The government is actively considering a proposal that could lead to a hike in Motor Third-Party (TP) insurance premiums, with discussions currently underway among the Ministry of Finance, Ministry of Road Transport and Highways and the Insurance Regulatory and Development Authority of India (IRDAI). Sources familiar with the matter suggest that a decision could be reached within the next one to two weeks.
The proposed adjustment, an average increase of 18% in Motor TP premiums, follows a four-year period during which rates have remained unchanged. This freeze occurred despite mounting pressures on insurers, including rising claim costs, increased medical and legal expenses and inflation in vehicle repair charges.
Motor TP insurance, which is mandatory for all vehicle owners in India, forms a substantial portion of the general insurance business. As of FY25, it accounted for 60% of all motor insurance premiums and roughly 19% of total general insurance industry premiums.
Analysts believe that the potential premium revision could offer financial relief to insurers, particularly in terms of improving their combined ratios, a key measure of profitability in insurance. A projected boost of 400–500 basis points could strengthen the financial stability of both private and state-owned general insurance companies.
Current industry data show a notable variation in loss ratios, the proportion of claims paid out versus premiums collected. Private players like ICICI Lombard and Go Digit reported relatively moderate loss ratios of 64.2% and 69%, respectively. However, New India Assurance, a public sector insurer with the highest exposure to Motor TP, reported a staggering loss ratio of 108%, underscoring the financial strain in the segment.
Should the premium hike be approved, it could especially benefit public sector insurers struggling with unsustainable underwriting losses. Market watchers suggest that this move may also uplift investor sentiment across the insurance sector, particularly in anticipation of improved margins and financial resilience.
