- Date : 05/12/2018
- Read: 3 mins
IRDA no longer a party to third party insurance premium from 2021. Here's everything you need to know about
The Insurance Regulatory and Development Authority (IRDA) has decided to discontinue the practice of fixing the premium for third-party motor insurance from 2020-21. As a result of this decision, it will be up to the insurance companies to fix their own premium.
This change is expected to bring in renewed competition as insurance companies will try to woo customers by offering discounts or lower premium.
Presently, the premium fixed by IRDA is mandatory for all running vehicles. Transporters have been insisting that IRDA fix a cap on the premium and allow insurance companies to offer discounts on it. Insurance companies do provide a discount on ‘own damage’ premium as it is not fixed, although they are more willing to sell combo-policies that cover both third-party and own damage.
The push for this IRDA decision has come about as a result of the transporters’ dissatisfaction with the steep rise in third-party premium. Truckers have been protesting the 28% hike in third-party premium and questioning the need for IRDA to be a part of this exercise.
What has changed
IRDA has been fixing the premium in India for third-party insurance and will be doing so till 2020-21. Thereafter, it will be up to the insurers to fix the premium. In effect, IRDA is withdrawing from its present role of regulating the premium to be paid for third-party motor vehicle insurance.
About third-party insurance
Third-party insurance policies offer protection to the policy buyer against the claims of another person. This is prevalent in motor vehicle insurance where the policy buyer may need to compensate for the damage suffered by a third party in the event of an accident.
In this type of insurance, the policy buyer is the first party while the insurer is the second party, where the second party is providing insurance against any possible claims by a third party. The claim could be for injury to the third party, or damage to their property.
How customers will be affected
As a result of the decision, insurance companies are no longer bound by a predetermined third-party premium. With every company fixing their own premium, renewed competition can be expected as companies go for competitive pricing.
Policy buyers stand to benefit in such a scenario as premium rates and hikes will be market-driven. The task in front of the consumer will pretty much remain the same, which is to compare policies and select the best one.
The fear of cartelisation
It is logical to fear that insurance companies will form a cartel in fixing the premium. They may mutually agree to keep the premium at a certain base level. However, in the presence of bodies like the Competition Commission of India, anti-competitive practices can’t be carried out easily. So, the prospect of insurance companies forming a cartel is not as likely as it may seem.
The government’s stance
After this year’s sharp increase in third-party insurance premium by 28%, transporters have voiced their concern. This was discussed in a meeting in the Prime Minister’s Office and the issue of de-tariffing premiums also came up. The finance minister even assured a rollback of the hike to 15% but IRDA has ruled out this possibility for the remainder of the year.