The government today said insurance companies would incur about Rs 3,500 crore loss in the current fiscal on account of motor insurance.
"The insurance companies would incur a loss of approximately Rs 2,500-3,500 crore in the current year (2010-11) on account of this (motor insurance) business of which a substantial portion will be borne by the public sector insurance companies," Minister of State for Finance Namo Narain Meena said in a written reply to the Lok Sabha.
He said the government has asked the insurance regulator to implement the proposed increase in motor insurance premium as the losses could adversely affect the companies. "If the situation was allowed to continue, there will be a severe dent on the solvency of insurance companies which could lead to both solvency and liquidity issues for these companies," Meena added.
In January, the Insurance Regulatory and Development Authority (IRDA) had, in an exposure draft, proposed a review of motor insurance premium rates for third party liability cover.
If the draft is implemented, it would result in a 10 per cent increase in premium for private cars and two wheelers and up to 80 per cent for goods carriers. "The exposure draft envisages an increase of 10-80 per cent in the premium rates of third party motor insurance," he said.
Third party motor insurance is mandatory for all classes of vehicles. Though regulation of the tariffs in the non-life sector was withdrawn in 2007, third party motor insurance continues to be regulated.
The rates were last revised in 2007.
The IRDA has already taken views of various stakeholders for effecting hike in premium rates.
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