Premium hike ahead? Govt mulls 18-25% increase in third-party motor cover, says report

The Ministry of Road Transport and Highways is likely to consider a proposal to increase third-party motor insurance premiums by 18% to 25% for FY26, following a recommendation from the Insurance Regulatory and Development Authority of India (IRDAI), CNBC TV-18 reported on Friday.

The regulator has proposed an 18% average increase in third-party (TP) premiums, recommending a higher increase of 20–25% for a specific vehicle category. The report indicated that the final decision on this matter is anticipated from the ministry in the next 2–3 weeks.

IRDAI has sought an average hike of 18% in motor third-party (TP) premiums, which are mandatory for all vehicle owners in India. Notably, TP premiums have remained unchanged for the past four years, despite rising claim costs and inflationary pressures.

In FY25, third-party motor insurance accounted for 60% of the total motor insurance premium collected and nearly 19% of the overall general insurance premium. Industry experts say the proposed hike is necessary to maintain actuarial viability and support the growing compensation payouts in accident claims. If approved, the premium hike could impact vehicle owners across categories—from private cars and two-wheelers to commercial vehicles—who are required by law to hold valid third-party insurance coverage.

During the fiscal years 2013 to 2018, third-party insurance rates experienced significant increases. However, regulators have placed a cap on rate hikes at 2-3% between fiscal years 2019 and 2025. Despite net claims ratios for motor third-party insurance remaining steady at 82% in fiscal years 2024 and 2023, ultimate ratios have increased to 88% and 91%, respectively. As a result, the industry is advocating for adjustments to be made.

In an investor call held in March 2025, ICICI Lombard MD and CEO Sanjeev Mantri indicated that a premium hike across the motor insurance industry could be on the horizon in the next financial year.

Insurers are seeing rising claim pressures. New India Assurance reported a spike in its incurred claim ratio to 102% in Q3 FY25, up from 93% the previous year. Go Digit’s loss ratio also climbed to 65%, compared to 61% earlier. However, own-damage (OD) policies for new private cars continue to perform better, with relatively lower loss ratios.

Mandatory under the Motor Vehicles Act, Motor Third Party insurance offers protection for third-party liabilities resulting from accidents with insured vehicles. Currently, the renewal premium for small cars (up to 1,000 cc) is Rs 2,100, but this could increase to Rs 2,500. For mid-sized vehicles (1,000–1,500 cc), the premium may go up from Rs 3,400 to Rs 4,000.

The regulator has directed insurers to ensure minimum coverage of vehicles such as private cars, tractors, and goods carriers to improve insurance penetration, especially in rural and underinsured regions. Third-party insurance provides compensation for liabilities arising from injury, disability, or death caused to others by the insured vehicle.