India mandates third-party vehicle insurance, or liability insurance, for all motorists to cover damages or injuries caused by the policyholder to someone else.
The Insurance Regulatory and Development Authority of India, or Irdai, typically revises the premium rates for third-party vehicle insurance policies every 1-2 years under the Motor Vehicle Act. However, its last rate revision was in June 2022.
India saw a temporary surge in the sales of motor insurance policies after the covid years as new vehicle sales increased. However, the pace has since moderated, partly due to the stagnation in the policy rates for third-party vehicle insurance policies.
Between April 2024 and January 2025, motor insurance premiums in India increased 8.6% on-year to ₹80,882 crore, slower than the 14% pace in the same period of 2023-24, as per a recent report by CareEdge.
“There is a clear need to increase overall TP premium rates while recalibrating rates within the TP tariff sub-segments,” said Mayur Kacholiya, head–motor product and actuarial, Go Digit General Insurance, calling for a “targeted recalibration”.
“The current rate adjustments have not kept pace with the rising severity of claims, and there exists a significant cross-subsidy across different TP rate classes,” he said. “Without recalibration, underwriting losses will continue to escalate.”
Go Digit’s loss ratios in the December quarter increased to 69% for motor own damage insurance policies and 65% for motor third-party vehicle insurance policies, from 64% and 61%, respectively in the same year-ago period.
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Third-party vehicle insurance premiums for motor vehicles depend on factors such as the cost inflation index, claims ratio, and underwriting losses data of all motor insurance companies operating in the country, say industry experts.
According to Kacholiya, the annualized rate hike for private cars and commercial vehicles has been less than 1% over the past five years, while for two-wheelers, it has been 2-4%. In comparison, inflation for the severity of third-party vehicle insurance claims is 8-12% per annum, resulting in inadequate premium rates that hurt underwriting profitability.
Amit Chhabra, chief business officer–general insurance at Policybazaar, said premiums for third-party vehicle insurance should be increased by about 20%. “If you look at it in conjunction with inflation, CPI (consumer price index) inflation has gone up by around 20% over the past 3-4 years. Medical inflation growth has been even higher at 12-14% per year,” he said.
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A divided house
Some industry experts said the government should consider increasing the premium rates on third-party vehicle insurance for goods-carrying vehicles with a capacity above 12 tonnes and two-wheelers of 150-350 cc engine capacity to align with severity inflation.
They also suggested increasing the rates for private cars with engine capacity below 1,000 cc, intercity passenger-carrying vehicles, light commercial vehicles, and medium commercial vehicles.
“Even after the previous revision in TP motor insurance premiums in June 2022, it was clear that the increase would not fully cover for underwriting losses being incurred by motor insurance providers in the country,” said Pavanjit Singh Dhingra, joint managing director, Prudent Insurance Brokers. “Quite understandably, this position has been aggravated even further in the present scenario.”
He added that the government had increased the premium rate on third-party vehicle insurance policies for private cars by 6% in June 2022 and for motorcycles by 12-22%.
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However, Sumit Bohra, president of Insurance Brokers Association of India (IBAI), said existing premium rates are reasonable and blamed the underwriting losses on the longtail nature of the third-party vehicle insurance business, which requires high provisioning.
Provisioning refers to the mandated amount of capital that insurers need to set aside against third-party motor insurance policies.
“It is difficult to make underwriting profits unless you start reversing the provisions after a certain period basis the claims experience. As the company grows old the underwriting profits will be visible on reversal of excess provision,” said Bohra, who is also the chief executive officer of GlobeSecure Insurance Brokers. “TP premium should remain stable for one more year.”
As per Irdai’s Insurance Brokers Regulations 2002, all licensed brokers are required to be members the IBAI, which was incorporated in July 2001 and currently represents about 400 brokers.
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‘Time to recalibrate’
Towards achieving the government’s aim to ensure ‘Insurance for All’ by 2047, the revised Motor Third Party Regulations, introduced in June 2024, directed all general insurers to focus on improving the number of insured vehicles and their market share across key motor vehicle categories.
The government expected that if general insurers expanded their customer base at a faster rate they would have more opportunities to sell added insurance covers that could compensate for underwriting losses contributed by pure third-party vehicle insurance policies.
However, insurance industry executives say inadequate premium rates could nudge insurance companies to pick segments that make more business sense.
“It is time to recalibrate TP rates because you see distortions in the market and it is going to become less and less viable for insurers,” said Anup Rau, managing director and chief executive officer of Future Generali India Insurance.
“If these distortions continue, insurers will end up chasing markets which they think are viable from an underwriting perspective and leave the other segments. Finally, it does no service to anyone,” he added.
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