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Decoding Third-Party Premium Hike: Understanding the What & Why

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Published on March 25, 2021. EST READ TIME: 4 minutes

Bike insurance is among the key documents that every two-wheeler owner should possess. If caught without a valid one, you are liable to cough up INR 2,000 as penalty. This is because, as per the Motor Vehicle Act, you are required to have at least a valid THIRD-PARTY TWO-WHEELER INSURANCE POLICY to ride your bike anywhere in India. In this article, you will learn more about Third-Party or TP bike insurance, especially regarding its premium, and annual hikes.

What is the principle behind third-party premium?

You must first understand the basic idea behind third-party insurance. When you ride a bike on a public road, there is always a risk that an accident may occur. People who are not directly involved in the accident may also suffer total or partial damage due to sheer unpredictability of these accidents.

In order to compensate the victims of an accident, with damages sustained to person or property, the third party insurance policy was developed. The third-party insurance policy protects the bike owner by paying for claims arising out of this ‘third party liability’. Buying a third-party insurance policy allows bike owners to offset the risk of having to pay third-party compensation.

How is the third-party premium calculated?

Insurance Regulatory and Development Authority of India (IRDAI) is the body formed by the Government of India to regulate and oversee the activities of various insurance providers in the country. It also regulates the various terms and conditions as well as pricing models that insurance companies are required to follow. Since a third-party two-wheeler insurance policy is a legally mandated product, IRDAI has been granted the sole authority to decide and declare the prices that any insurance company can charge their customers for it. Basis a set formula, a number is derived for each vehicle type of a certain engine capacity within zones of registration.

Why does third-party premium tend to rise?

Third-party premiums are revised by the IRDAI from time to time. The logic behind third-party premium is to help the policyholder to get financial assistance for the damages suffered by victims. The Insurance Regulatory & Development Authority of India (IRDAI) sets up the third party insurance premium rates for all two-wheelers.

Usually, at the end of each financial year, the IRDAI reviews the loss ratios of motor insurers as well as the total number of claims raised by two-wheeler owners. After considering these factors, IRDAI announces the third parry premium rates for the next fiscal year.

The impact of third-party premium going up?

The impact of an increase in third-party insurance premiums has been debated and researched multiple times. The general consensus remains that both new business and new purchases tend to undergo only minimal impact.

One key reason behind this can be the fact that most people take comprehensive insurance policies. When looking at the big picture, the comprehensive policies are where the main flow of business comes from. Motor vehicle owners in India realise the importance of ‘own damage protection’ offered by a comprehensive policy.

The owners of older vehicles tend to be more impacted by third-party premium prices because when their insurance policy price is broken down, third party component becomes a rather big component. Then there are also a few people who only take third-party bike insurance.

Should you buy third-party cover now?

If you have a two-wheeler, old or new, and have recently purchased or renewed an insurance policy, you need not be concerned about the hike in third-party policy premium. However, if you have kept your bike in a mothballed condition or your renewal period is near, you must seriously consider purchasing a third-party cover before the prices go up. Remember that the price of a third-party policy is decided by the regulators. Insurance companies are not allowed to give any discounts on them. This means that if you wait to buy the policy, you will have to pay the higher prices.

Conclusion

Hike in third-party premium is an annual exercise finalised by IRDAI and hence it is advisable that you renew your bike insurance immediately. Always keep in mind that while the third-party cover is enough for legal purposes, a COMPREHENSIVE BIKE POLICY with adequate own damage protection will make more financial sense every single time!

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

This blog has been written by:

Mukesh Kumar | Motor Insurance Expert | 36+ years of experience in insurance industry

A veteran in the insurance industry, Mukesh Kumar has the expertise of handling various functions like Business Development, Underwriting, Claims, Human Resources, Quality Management and Marketing. With rich knowledge of the industry, he loves to share his views on topics of insurance sector and takes special interest in educating people on advantages of having insurance

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Few Other Articles:

• Importance of Third Party Insurance

• Why You Should Have A Third Party Insurance Policy

• Rise of Third Party Motor Insurance Premium and Its Impact

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