Shares of general insurance companies rallied sharply on June 6 following reports that the central government is considering a significant hike in third-party motor insurance premiums based on recommendations from the Insurance Regulatory and Development Authority of India (IRDAI). This potential increase, the first in several years, triggered optimism among investors, especially for insurers like ICICI Lombard General Insurance, Go Digit General Insurance, and New India Assurance Company.
IRDAI Recommends Substantial Premium Hike; Final Decision Awaited from MoRTH
According to a CNBC-TV18 report citing sources familiar with the matter, the IRDAI has suggested an average hike of 18% in third-party (TP) premiums, with a steeper increase of 20–25% for certain vehicle categories. The final call now rests with the Ministry of Road Transport and Highways (MoRTH), which is expected to decide within the next two to three weeks. If approved, the changes will undergo a public consultation process through a draft notification, followed by stakeholder feedback and procedural clearance before implementation.
Highlights:
IRDAI proposes an 18% average hike; up to 25% for select vehicle types.
MoRTH decision expected in 2–3 weeks; followed by public consultation.
Premiums have remained unchanged for 3–4 years, despite sectoral challenges.
General Insurers Rally on Hike Prospects Amid Long-Stagnant Premiums
The anticipated revision in TP insurance pricing drove a surge in share prices of listed general insurers. ICICI Lombard General Insurance saw its stock jump over 7%, reaching a three-month high. Go Digit General Insurance gained nearly 5%, marking its highest level in six months. New India Assurance Company shares also advanced by almost 2% on the same day.
The rally comes amid expectations that a higher premium structure could directly enhance profitability and underwriting margins for general insurers, especially as TP policies constitute a significant portion of motor insurance portfolios. Analysts noted that the unchanged TP premium structure for the past few years has constrained earnings and capital adequacy, and a 20% hike could improve the sector’s operational stability.
Highlights:
ICICI Lombard up over 7%; Go Digit rises 5%; New India Assurance gains 2%.
Market anticipates profitability boost amid stagnant TP premium regime.
Analysts say 20% premium hike could improve sectoral financial performance.
Motor Third-Party Insurance: A Regulatory Cornerstone for Auto Safety
Under the Motor Vehicles Act, 1988, third-party motor insurance is mandatory for all vehicles in India. It provides coverage for liabilities arising from injuries, death, or property damage caused to third parties in accidents involving the insured vehicle. The cover is especially critical for handling legal and financial exposure from unforeseen road mishaps. Despite its legal importance, premiums have remained static for three to four years, despite rising costs and claim ratios in the general insurance space.
Highlights:
Third-party insurance is mandatory under Indian law for all motor vehicles.
Covers legal and financial liability for third-party injury or property damage.
Despite inflation and rising claims, premiums have remained frozen for years.
