Saturday, September 30, 2023

India announces new vehicle insurance rates


A key factor leading to the hike in vehicle insurance is the insurance premiums’ impact on insurance policies’ overall prices.

Motor vehicle insurance rates in India are set for a slight increase. With the new rates in place, the Business Insider India reports that motorists will shell out up to an additional 21% for third-party insurance. This came into effect on June 1. While not unforeseen, this has required adjustments for motorists since insurance rates have been unchanged for the past two years, with the last revision approved in the fiscal year 2019-2020.

According to the gazette notification issued by the government, a revised rate of Rs 2,094 was implemented for private vehicles with a 1000 cc engine capacity, slightly higher compared to the previous Rs 2,072. Meanwhile, those private vehicles with an engine capacity between 1000cc and 1500 cc will incur an increase from Rs 3,221 to Rs 3,416. On the other hand, a drop in premiums will be enjoyed by motorists whose cars are above 1,500 cc engine capacity. The new rates are Rs 7,890 from the previous Rs 7,897.

Another factor leading to this hike is insurance premiums’ impact on insurance policies’ overall prices. A guide to insurance premiums by AskMoney explains that prices for insurance premiums change due to a variety of other factors such as changes in location, the policyholder’s behaviour, claims history, and market costs, which have skyrocketed in the past two years. Insurance agencies are suggesting that vehicle owners purchase increased deductibles (out-of-pocket payments when filing claims) to keep monthly and annual costs at a lower level.

On top of that, transport researcher SP Singh pointed out some factors contributing to the insurance rate hike including tax raises on diesel, tires, and tolls, and its inflationary effect on other materials. Additionally, the overall inflation rate in India rose almost a full percentage point, from 5.14% in 2021 to 6.04% in 2022, affecting several other aspects of the country’s cost of living, including vehicle maintenance.

There are also factors outside the country that have led to the hike in insurance rates. Credit rating agency ICRA cited a semiconductor shortage propelled by the ongoing Russia-Ukraine conflict as an added factor to the upward movement of insurance rates.

Aside from higher fees for smaller cars, the new rates also provide surcharges for two-wheelers – Rs 1,366 for bikes under 350 cc, and Rs 2,804 for those beyond 350 cc. A 7.5% discount, however, is to be provided for hybrid electric vehicles. For electric private cars, the rates are Rs 1, 780 for those below 30 KW, and Rs 2,904 for those between 30 KW and 65 KW.

Automobile manufacturers meanwhile expressed concerns about the probable impact of the steep hike on the demand for two-wheelers and smaller cars, with consumers shifting to other automobile products.

However, ICRA allays fears of decreased demand for two-wheeler vehicles and smaller cars citing return-to-office, and return-to-school measures as possible driving forces for increased demand, especially in rural areas.

The discounts allotted for electric-powered vehicles are also expected to have an impact on consumer preference. Abijhit Roy explains in his op-ed how the world market is increasingly tilted towards a shift to battery-powered electric vehicles instead of those with the traditional ICE (internal combustion engine).

There’s no way to say for certain what the long-term impacts of these upward revisions will be, but major stakeholders and the Indian population are anticipating the cumulative effects of the insurance rate hikes on the Indian economy, including fluctuating costs of transportation, and indirectly, daily necessities.

Also Read: Adding a dash of salt to electric vehicle battery arms race

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