State-Run General Insurers May Raise Motor Insurance Premiums by 40%

The Finance Minister has asked public sector insurance companies to plan new marketing strategies to control motor insurance losses. He also asked to raise premiums to minimise third party motor insurance losses which added up to Rs.6,134 crore during 2011-12.

The Minister asked insurers to re-price their motor insurance policies so that the combined ratio including claims and commission does not exceed 100%. This decision on re-pricing is expected to raise the premium by atleast 30-40%.

Earlier the finance ministry asked general insurance firms to re-structure their policies for loss-making portfolio in fire and health sector. Now, the ministry wants state-run insurers to improve their claim management and cut down expenses. It seems the general insurers will also come up with issuing separate policies for own damage and third-party liability. The own damage premium will provide cover above the mandatory third-party cover.

As per the new guidelines, an insurer cannot pay more than 35% of the own damage premium under discounts, commission or brokerage expenses. Also, insurers cannot pay commission for vehicles of more than 10 years old.

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