IRDA will stop fixing 3rd party insurance premium from 2021

IRDAI-stop-3rd-party-insurance-premium

In India, the Motor Vehicles Act passed in 1988 lays down the road traffic rules. One such rule which has been prescribed by the Act is the requirement of a valid insurance cover on all vehicles.

 

As per the provisions of the rule, every vehicle, which runs on Indian roads, should have a valid third party liability cover on it. Just as the driving license is important for an individual to drive a vehicle, a third party insurance cover is mandatory for the vehicle to be driven around. In the absence of the mandatory insurance cover, the vehicle owner/driver would face serious legal complications.

 

The cover

 

Third party insurance has been made mandatory because of the coverage it offers. Coverage under third party policies is given for the following –

 

  • Bodily injury or death of any third party (any other individual besides the vehicle owner/driver) due to the vehicle
  • Damage to the property belonging to any third party due to the vehicle

 

While in case of property damage, the maximum liability paid by the policy is limited to INR 7.5 lakhs, in case of bodily injury or death, there is no limit to the liability covered. The insurance company would pay the amount ruled by the motor accidents tribunal whether the amount is in lakhs or crores.

 

Availability of third-party coverage

 

Every general insurance company offers a third party liability policy with the above-mentioned coverage benefits. The premiums of the policy are uniform across all insurance companies as it is fixed by the Insurance Regulatory and Development Authority of India (IRDAI).

 

The premium depends on the engine capacity of the vehicle and the type of vehicle. Even in the case of comprehensive motor insurance policies, the third party liability premium remains fixed while the own damage premium depends on the insurance company. Besides fixing the premium, IRDAI also reviews and updates the premium rates every year.

 

The new change

 

Up until now, IRDAI is tasked with the determination of third-party liability premium. However, recently, IRDAI hinted that it would stop fixing premiums for third-party policies from the financial year 2020-21. This news came up for discussion in a meeting held at the Prime Minister’s Office where truckers demanded to roll back the premium increase in the current financial year.

 

Truckers demanded that the new third party premiums for the current financial year should be rolled-back by 28% to which the interim finance minister, Mr. Piyush Goyal, agreed on a rate of 15%. Thereafter it was indicated that IRDAI might stop fixing third party premiums.

 

How it affects your business

 

If IRDAI steps down from the task of fixing third party premiums, the insurance companies would have complete autonomy in determining the premium rate for their motor insurance policies. Given the stiff competition prevailing in the motor insurance market, lowering of third party premiums is a distinct possibility.

 

If the premiums reduce it would be good for your business. Your clients would be more than happy to buy and renew their motor insurance policies. Motor insurance policies would become popular and as they do your business would grow.

 

Though the IRDAI governs the insurance sector, it makes various changes from time to time. Deregulating third party premiums is one such change which might impact the insurance sector positively. And if there is a positive impact your business would also grow along. So, it is good news either way. 

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