IRDAI proposes 18% motor third-party premium hike after four-year freeze: Sources

The Insurance Regulatory and Development Authority of India (IRDAI) has proposed an average 18 per cent increase in motor third-party (TP) insurance premiums, potentially ending a four-year freeze in rates. For at least one category of vehicles, a steeper hike between 20 and 25 per cent has also been recommended.

The proposal is currently under review by the Ministry of Road Transport and Highways (MoRTH), which is expected to announce its decision within the next two to three weeks. 

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Motor third-party insurance, which is mandatory under the Motor Vehicles Act, provides coverage against third-party liabilities arising from road accidents involving insured vehicles. It forms a significant component of the insurance industry’s revenue — accounting for approximately 60 per cent of total motor insurance premiums and around 19 per cent of the general insurance sector’s overall premium collections in FY25.

Despite its importance, the segment has been under considerable financial strain. TP premiums have remained static since 2021, even as accident volumes, litigation claims, and medical costs continue to rise. The prolonged price freeze has eroded underwriting margins, forcing insurers to absorb growing losses. According to analysts, a 20 per cent increase in TP premiums could improve the industry’s combined ratio — a key metric of underwriting profitability — by 4 to 5 per cent, offering some relief to general insurers.

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The move comes at a time when the broader general insurance industry is dealing with rising claim outflows and stagnant pricing structures. Industry stakeholders believe that regular, data-driven revisions in TP premiums are essential to keep pace with growing vehicle density, inflationary pressures, and judicial trends in compensation awards.

With IRDAI’s proposal now in the government’s hands, market observers are also keeping a close eye on how listed insurers — particularly ICICI Lombard — might respond to the regulatory outcome. A decision from MoRTH could influence stock sentiment and trigger pricing adjustments across the motor insurance space.