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Stiff fines drive third-party motor insurance business

Insurers said that the stricter enforcement of penalties by the police has led to this massive surge in customers buying mandatory third-party motor insurance. Under the new provisions, driving an uninsured vehicle will lead to a fine of Rs 2,000.

Oct 21, 2019, 10.41 AM IST
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(This story originally appeared in on Oct 21, 2019)
BENGALURU/ MUMBAI: Despite a severe slump in auto sales, higher penalties under the new vehicles Act led to a surge in third-party motor insurance purchases in September. Even as vehicle sales tanked 24%, up to 38% more third-party motor insurance policies were picked up, driving the overall insurance business up by 18%. This is almost double the 7-11% year-on-year growth seen in the past three months.

Non-life insurers raked in Rs 32,400 crore by way of motor insurance premium in September, up from Rs 29,871 crore in the previous month. The total growth in motor premium (third-party and own damage) was 21%, lower than that of the mandatory third-party. It is clear that existing vehicle owners are buying insurance to remain compliant as the premium from ‘own damage’, which reflects new sales, was down 2% for the industry.

According to a report by Kotak Securities, PSU players reported 22% year-on-year growth compared to 3% year-to-date decline in the first five months of the current fiscal. Among large players, SBI General and HDFC Ergo surprised with 79% growth (-9% to 36% growth in the past five months) and 93% year-on-year, respectively. Bajaj was up 53%, from 11-18% in the previous three months.

Insurers said that the stricter enforcement of penalties by the police has led to this massive surge in customers buying mandatory third-party motor insurance. Under the new provisions, driving an uninsured vehicle will lead to a fine of Rs 2,000 and/or imprisonment of up to three months for the first offence, and a fine of Rs 4,000 and/or imprisonment up to three months for the second offence.

Earlier, the penalty was lower at Rs 1,000. Industry experts said compliance was higher just for commercial vehicles earlier, as they were subject to more tolls, scrutiny and checks than personal vehicles that are driven mostly within city limits. Roughly, compliance in buying insurance is about 85% for commercial vehicles and 35-50% for personal vehicles (cars and two-wheelers), according to estimates.

“This is a positive trend as the penalty is actually higher than the cost of insuring a two-wheeler. So, this has brought a large number of uninsured vehicles within the insurance net. Own damage and personal accident insurance have also seen higher sales,” said Tapan Singhel, CEO, Bajaj Allianz General Insurance Co. “However, I am not for watering down the current regulation as some state governments have proposed. Stricter laws will mean more compliance, safer roads and fewer accidents.”

Insurers said that in the case of two-wheelers, most Indians purchase insurance only when they buy the vehicle, that is, the first year when the insurance comes as a package with buying the vehicle. Majority of commuters don’t bother with annual renewals thereafter. To overcome this, the court has directed that the regulator enforce long-term policies of five years for two-wheelers. “We are seeing an increase in purchases from owners of older two-wheelers and third-party premium in this segment has doubled in September,” said Bhargav Dasgupta, MD & CEO, ICICI Lombard General Insurance. He added that there were already signs that this was tapering off with some states deferring the enforcement.

According to IRDAI’s annual report, insurance penetration (premium as a percentage of GDP) in India stood at 3.6% — with the share of general insurance at 0.93%. “India still has a huge number of four-wheelers and two-wheelers that remain uninsured and the new rules will definitely drive motor insurance sales growth for the next year at least. Other reasons for the increase in motor insurance premiums this September are higher claims (possibly leading to more awareness) and more people opting for add-on covers,” said Rahul Agarwal, founder of broking firm Ideal Insurance.
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