IRDAI to stop fixing third- party insurance premium from 2021

Many complain that India has lesser percentage of insured people despite being a densely populous nation. It is a general conception that a highly populated land has higher number of consumers in any industry provided their income should support them. The nation being a moderately earning one, the expectations are high for insurance companies. However, the numbers disappoint as we have less number of insured people and the prospective growth is not as per the projections. If we dig into the reasons, the insurance norms prevailing in the industry discourage the development of insurance domination. The prominent reason to be attributed to this discouragement is the insurance being expensive than what it exactly has to be. Though it is surprising, insurance is not compulsory in India unlike other developing nations where insurance has been made compulsory.

However, third party insurance is mandatory in India where in any driver or owner of the vehicle is bound to compensate for the losses he/she has incurred to a third party victim without their mistake. As this third party liability is mandatory, people are compelled to pay for it. Otherwise no one would want to purchase it as the third party insurance has fixed premium which is very high for its comprehensive nature. Despite wanting to offer discounts to attract more consumers, the insurance companies are unable to do so due to the IRDAI policies. No insurance company in India can go against the IRDAI policies and implement the positive changes in order to encourage the clients.

But the good news for both the insurance companies as well as the insurance seekers is that IRDAI to stop fixing third-party insurance premium from 2021 paving a way for the insurance companies to offer whopping discounts on third party premiums. The regulatory authority has indicated that it would dismantle the existing manner where in the third party premium is fixed annually for automobiles from 2020-2021. This can empower the insurance companies to fix their own premium which can bring the overall premium down due to tough competition amongst the various insurance companies. 

The Insurance Regulatory and Development Authority (IRDAI) has indicated that it would disband the practice of annual fixing of premium for third party (TP) insurance for motor vehicles from 2020-21 onwards. This would pave the way for insurance companies to quote their own premiums, which may bring it down because of stiff competition. Many of these companies welcome IRDAI to stop fixing 3rd party insurance premium from 2021. Contrary to the existing policy, the IRDAI is to announce volatile premium for third party insurance cover which is compulsory for every automobile that runs on Indian roads. There has been a demand from the transporters side that the IRDAI needs to fix the cap for the existing premium and permit the insurance sector biggies to provide good discounts to encourage policy seekers by offering them a varied choice.

Insurance companies can offer reasonable discounts as there would be no fixed premium for own damage here after. As per the Insurance Information Bureau of India’s (IIB report), the insurance companies have reaped about Rs 50,000 crores as part of motor vehicle insurance premium in the financial year 2016-2017. The top notch insurance companies are keen on selling insurance policies which are comprehensive in nature inclusive of both third party and own damage cases. As per sources, many of the government officials opine that the discussions held recently in the prime minister’s office owing to the truckers’ demand to take back the government order of increasing premium for the current fiscal year has fetch the latest government decision of de-tariffing third party premium.

Thanks to the truckers to explicitly represent the insurance seeking population as well as the insurance companies who want to offer discount in order to bring the majority of population into insurance coverage. Their strike listing an array of demands out of which the main was to roll back approximately 28% of increase in third party premium has ended in positive results. All the speculation ended when the interim Finance Minister had guaranteed the truckers association to decrease the third- party premium to 15%. The news that IRDAI to stop fixing third party insurance premium from 2021 broke out like a viral video in no time to spread a sweet wave across, insurance seekers and the insurance companies.

Considering the prospects of growth for insurance segment in India owing to its huge population with moderate income sources, many international insurance companies have entered Indian insurance market and marked their significance in the spectrum. The current government decision is going to benefit not only the biggies but the Indian population as such there by bringing them into insurance coverage. Ultimately, it is the Indian population which is going to get benefitted from the new change and so has the government brought the change for the sake of its people.