Financial Daily from THE HINDU group of publications
Wednesday, Feb 13, 2002
Logistics - General Insurance
Motor risk premiums to go up from April
BANGALORE, Feb. 12
THE Tariff Advisory Committee (TAC) of the Insurance Regulatory and Development Authority (IRDA) has effected a hike in motor insurance premiums. The new premiums are expected to take effect from April 1.
Consequent to the hike, insurance premiums would be the highest in Chennai and New Delhi, industry sources say. The premiums have been increased from 1.5 per cent to 1.751 per cent in these cities for commercial vehicles.
Similarly for cars, the hikes in the new premiums are expected to range between 3.2 per cent and 3.5 per cent depending on the category of the vehicles from the current level of 2.15 per cent.
The hikes had been effected on the basis of the recommendations of the Ansari Committee, the sources said. The committee was set up in January 2001 for rationalising motor insurance tariffs.
Based on the committee's recommendations, TAC has categorised the country into four different zones for the calculation of insurance tariffs, which is a complete departure from the past where there were only two zones for cars and a single zone for the entire country. The zones are - Zone A (Chennai & New Delhi), Zone B (Ahmedabad, Bangalore, Kolkata, Hyderabad and Mumbai), Zone C (All other State capitals) and Zone D (rest of India).
For commercial vehicle insurance tariffs, there will be only three zones whereas for cars, four zones would apply.
This categorisation has been done on the basis of loss ratios in some regions. Such loss ratios have been arrived at on the basis of claims history in the respective regions, the sources said. Therefore, premiums would be the highest in Zone A and the lowest in Zones C and D.
TAC has also brought about changes in providing "no claim discounts". The current system does away with loading based on claims experiences. This implies that insurance companies' premium hikes will not be permitted based on claims experience. Instead, it has retained the system of discounts to be allowed as part of the `no claim bonus'.
But tariff loading is to be done for vehicles above 5 years at the rate of 2.5 per cent up to seven years and 5 per cent for commercial vehicles. This move is being undertaken to ensure that new vehicles do not subsidise the older vehicles. Further tariff loading will also be permitted based on the operational region. Consequently, it would mean that Zone A vehicles will have the highest loading.
Besides, TAC has completely revamped the methods of valuation of vehicles. Currently, full claims settlement was being done on the basis of the market value of the car/truck.
However, under the new system, the insuree would have to declare the value of the asset and consequently premiums would be fixed on this basis. Such a system has certain inherent advantages. If the declared value is high, the premiums will also remain high. On the flip side, the declared value would also have to be acceptable to the insurance company, whose prerogative would be to keep liabilities at the lowest possible level.
Further, TAC has also enhanced the limit on third party liabilities. A ceiling of Rs 7.5 lakh has been fixed for third party property damage for a premium of Rs 200.
However, TAC has retained the unlimited liability cover for an additional premium ranging from Rs 100 to Rs 250 depending on the vehicle class.
Moreover, TAC has replaced the current comprehensive policy with a new package policy. This provides for risk cover against force majeure events including natural disaster. This cover is provided currently only against additional premium.
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