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All about Revised Third Party Motor Insurance Premium

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Buying a car still features high on the list of aspirations that Indians have. If you have been planning to buy a car, you would have to look at a lot of factors. For instance, your budget, the type of car you want to buy, your usage, its maintenance costs and so on. Amidst all this, you must not forget the third party car insurance policysince it is mandatory. And not to mention that the policy's premium can impact the car's overall budget. More on that later.

As per the Motor Vehicles Act of 1988, it is compulsory to purchase car insurance so that you can legally drive it on Indian roads. You must at least have a third party car insurance policy for legal clearance. On the other hand, if you drive your car without valid insurance, you are liable to pay substantial penalties on the same.

Revised Premiums from June 1st

The IRDAI, or Insurance Regulatory and Development Authority of India, is the body that regulates insurance in India. Since the third-party car insurance policy is mandatory, it is regulated by the body. And IRDAI decides the policy premiums for the same. Since the onset of the ongoing pandemic, the IRDAI has not hiked the premiums prices of third-party liability policies.

Thus, the hike announced earlier this year, is the first premium hike since 2019. The IRDAI, in conjunction with the Ministry of Road Transport and Highways (MoRTH), announced the hike in premiums, which would be effective from the 1st of June, 2022.

As per the revised premium rates, private car owners whose engine capacity is up to 1,000 cc will have to shell out INR 2,094. Similarly, cars with an engine capacity of 1,000 cc to 1,500 cc will now have to pay INR 3,416. And cars with engine capacity exceeding 1,500 cc will have to pay a third party premium of INR 7,897.

The revised rates are also applicable to two wheelers, where bikes with engine capacity between 150 cc and 350cc will have to pay INR 1,366 as the policy premiums. And bikes with engine capacity exceeding 350cc will have to pay INR 2,804 as a premium. These rates are for a single year only, and the premiums for multi-year policies have been revised accordingly.

Impact on Insurance Policies

As already mentioned, it is mandated by the law to have a third party liability policy for your vehicle. Thus, a change in the third party policy premium will impact all existing policyholders along with the ones who wish to buy new policies.

More importantly, the recently announced hikes would increase the price of new two wheelers and four wheelers. The primary reason is, that with a new car, you need to purchase a policy for at least three years, and with a new bike, you would need to buy a policy for five years. A change in the base third party policy would thus impact the overall price of your new car or bike.

Impact on Hybrid, EVs and Commercial Vehicles

The price revision is not restricted to only bikes and cars but also impacts hybrid and electric vehicles. People owning a hybrid electric car would receive a discount of 7.5% on the third party liability policy. Similarly, people having electric vehicles will receive a 15% discount on premiums of a third party policy.

Electric cars for private usage and having a capacity of 30KW will attract a premium of INR 1,780. And electric cars for private usage within the capacity range of 30KW and 65KW will have to shell out INR 2,904 as the policy premium.

As per the revised rates, commercial vehicles that carry goods within the range of 12,000 Kgs and 20,000 Kgs will have to pay INR 35,313 as the policy premium. For commercial vehicles that carry goods exceeding 40,000 Kg, the revised premium is INR 44,242. Again, the policy premiums might vary based on whether you opt for a short term policy or a long term policy.

Apart from the above, the revised rates bring relief to educational institutions as they will have to shell out 15% less for the third party liability policies for their buses. And private car owners with Vintage models will have to pay 50% lower premiums for a third party car insurance policy.

IRDAI and MoRTH’s Role

There have been quite a few predictions in recent years when it comes to changes in premium rates for motor insurance plans. Keeping in tune with these predictions, IRDAI proposed the amendments recently, as far as third party vehicle insurance is concerned. The MoRTH then declared the new rates for various categories of vehicles. IRDAI has kept in mind to keep the changes minimal for private owners and commercial vehicles. Despite that, the changes will impact the affordability of policy for a lot of individuals. The IRDAI regulates the policy premiums on a yearly basis, and there are a few reasons for the same. The IRDAI looks into factors such as loss ratios posted by the insurance companies and total number of claims that are raised by policyholders. Based on these, the IRDAI decides whether or not to hike the policy premiums and by how much.

How Insurers Decide Policy Premiums

Car insurance companies consider a variety of factors to decide the policy premium. Here are some of the major ones.

1. Claims History

If you are someone who claims their policy regularly, you will come across as someone who is a risky proposition. This might increase your policy premium.

2. IDV

The insured declared value of the car is the current market value of the car that your insurance company will consider. A higher IDV would fetch a higher policy premium, and a lower IDV would warrant a low premium.

3. Car’s Age

An older car will fetch a lower premium than a brand-new one. Thus, it is an important factor in determining the policy premiums. Insurance companies also consider the type of car, third party premiums, location of the policyholder and your driving habits as well. All of these factors together contribute to deciding a policy premium for your car. With the recent changes, the third party car insurance policy premiums are all set to increase. The hike in third party car insurance policy would also increase the price of comprehensive plans since it includes a third-party liability policy.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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