The Indian general insurance industry is staring at a loss of between INR100 billion ($1.48 billion) and INR250 billion in the next few years, after the government increased compensation for third party deaths tenfold to INR500,000.
A notification amending the scale of compensation under the Motor Vehicles Act took effect from 22 May, reports The Economic Times.
The change will increase motor payouts by 5% annually with effect from 1 January 2019. The minimum amount payable for third party death was INR50,000, but is now INR500,000. For permanent disability, compensation was INR25,000 and now INR50,000. However, the average claim payout was around INR300,000.
Third party motor cases take longer to settle, and the compensation amount is decided by the courts. The sum insured is unlimited in case of fault liability claims. Under fault liability claims, the claimant has to prove negligence on the part of the driver of the vehicle that caused the accident.
The industry expects third party motor premium rates to be hiked by 20%-30% as a consequence. This will be in addition to the annual revision in rates based on actuarial assumptions and performance of the portfolio. The IRDAI determines motor third party liability insurance tariff rates.