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October 2023
<aside> <img src="https://prod-files-secure.s3.us-west-2.amazonaws.com/2df93aac-bfa8-4407-8a0f-fb03db36f6b4/29d84082-dc2a-4d48-81f0-43ca59d4f080/317750_linkedin_icon_(1).png" alt="https://prod-files-secure.s3.us-west-2.amazonaws.com/2df93aac-bfa8-4407-8a0f-fb03db36f6b4/29d84082-dc2a-4d48-81f0-43ca59d4f080/317750_linkedin_icon_(1).png" width="40px" /> Viswateja Krottapalli
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Recently, I was involved in a car accident. It wasn't due to my error or that of the other driver's, but rather the reckless driving of a third individual. This person managed to drive away, leaving the other driver and me to deal with the aftermath. My car sustained minor damage, whereas the vehicle I collided with was significantly damaged. Since I have third-party insurance, I provided my insurance details to the other driver for claiming purposes. However, we soon discovered the complexity and time-consuming nature of the claim settlement process. This led us to decide to handle the repairs independently and split the repair costs between us.
In India, third party insurance is mandatory by law, and it covers legal liabilities, accidental liabilities, property damage, injuries, and death of third parties resulting from accidents involving the insured vehicle. Though I couldn’t get the exact claim rate for 3rd party insurance, I read that the claim rate in India is very low compared to comprehensive insurance because of the burdensome and time-consuming process.
Claimants are required to navigate through the intricate process of registration of FIR, collection of a charge sheet, and filing a case with the Motor Accident Claims Tribunal. The claimant must prove the other party's negligence in court to obtain compensation. Moreover, the high number of pending cases often causes delays, further contributing to the low ratio of claiming third-party insurance.
I believe that the mandatory nature of 3rd Party insurance coupled with a very difficult claim settlement process seems to be a sweet spot for insurance companies.
The market size for third-party insurance for vehicles in India was estimated at INR 0.9 trillion in 2023. It is expected to grow, reaching up to INR 1.00 trillion in 2024, and further increasing to INR 1.70 trillion by 2029, with a compound annual growth rate (CAGR) of 11.16% during the forecast period of 2024-2029. Third-party insurance holds a significant share in the India Motor Insurance Market, accounting for 34.1% of non-life insurance premiums earned in FY21. The market is driven by factors such as the rising demand for personal mobility, increasing automobile sales, and the mandatory requirement for motor insurance as per the Motor Vehicles Act 1988. Participation of private insurers in the car insurance sector is on the rise, contributing to the growth of third-party insurance alongside comprehensive insurance plans.
Third party auto insurance premiums earned are 34% of the total non life insurance premiums sector by value
The profitability of third-party car insurance companies in India is influenced by several factors. In the last financial year, general insurance companies collected a considerable sum of Rs 26,523 crore under the third-party motor segment. This uptick in the third-party pool can be attributed to various factors, including a decrease in own damage claims and an increase in premiums for the third-party segment. Furthermore, private sector insurance companies such as Cholamandalam MS General Insurance, Reliance General Insurance, and Shriram General have evidenced higher activity in writing third-party insurance compared to motor own damage. Regulatory interventions have also impacted the profitability, with the insurance regulator raising insurance premiums to ensure price parity with the industry's loss ratio.
In India, the process of claiming third-party car insurance involves several steps. After an accident, the policyholder must inform the insurance company immediately and submit a duly filled claim form along with the required documents such as a copy of the police FIR, the vehicle's registration certificate, and the driver's license. The insurance company then assesses the claim and may conduct a survey of the damaged vehicle before approving the claim. Once approved, the insurer directly settles the claim with the third party involved in the accident or their representatives.
The relatively low claim rate for third-party car insurance in India can be attributed to several factors. One reason is the lack of awareness and understanding among the public about the importance and benefits of third-party car insurance. Additionally, the complex and time-consuming claim settlement process, coupled with the perception of insurance companies delaying or denying claims, may discourage individuals from filing for claims.
Moreover, the legal complexities and lengthy judicial process involved in third-party claims in India can also contribute to the low claim rate. The Motor Vehicles Act, 1988, governs the process of third-party insurance claims, and the involvement of legal procedures often dissuades individuals from pursuing claims, leading to a low claim rate overall.
Furthermore, the prevalence of fraudulent claims, inflated claims, and the misuse of third-party insurance for minor damages also impacts the claim rate. Insurance companies may be wary of potential fraudulent claims, leading to a stringent evaluation process and, in turn, affecting the overall claim rate.