Motor Vehicles Act offsets slump for auto insurers

Despite plummeting auto sales, insurers have seen healthy growth in their premiums on the back of increased penalties for driving without insurance under the Motor Vehicles (Amendment) Act 2019.

The jump in average monthly premiums paid after September was as high as 19%. For the first five months of the current financial year, the average monthly premiums of all insurers combined stood at Rs 5,281 crore, while for the three months after it, the number jumped to Rs 6,303 crore.

While the annual monthly growth in gross premiums till August has been in the range of 4-5%, it picked up in September, with growth for April-September period standing at 8.5% — when the new Act came into force — despite sluggishness in the first five months.

The cumulative growth in gross premiums further increased to 9.7% for seven months ended October 2019, followed by 9.1% till November.

With the amendment, which came into force on September 1, 2019, the penalty has been hiked by 10 times for various violations. If you are caught driving an uninsured vehicle for the first time, according to the Act, you can be penalised Rs 2,000 and/or imprisoned for up to three months.

The second offence will attract a fine of Rs 4,000 and/or imprisonment of up to three months.

“Spurt in the motor insurance in September is attributed to strict implementation of the Motor Vehicle Amendment Bill. Around 70% of motor vehicles are unregistered and due to strict enforcement, owners rushed to buy insurance. The highest growth was in the insurance of two-wheelers from tier 2 and tier 3 cities,” said Arun Singh Bhadauria, Head – motor insurance, Universal Sompo General Insurance.

April was a crucial month as the total premium collection of the general insurers in the motor segment dropped to Rs 5,145.8 crore from Rs 6,139 crore in March — a dip of 16% on a sequential basis and a paltry growth of 1.4% on annual basis.

In April FY18, the total premium collection for general insurers in the motor segment was Rs 5,073.63 crore, a y-on-y growth of 14.3% over April 2017. The premium collection in the segment, in the corresponding period this year, was Rs 5,145.80 crore, a y-on-y growth of only 1.4%.

Experts told DH that the automobile slowdown has been the fundamental reason for the slump.

Talking about the impact of automobile slowdown on the growth of motor insurance business, Bhandauria says, “Motor insurance business was growing at the rate of 18% but in FY19 the growth slipped to 9%. In FY20, till October, the growth rate is still 9%. October was an aberration due to an increase in sales of cars over September. This was due to the festival season, but it could not cross the sale of previous years.”