General insurers face increased motor third-party claim reserves following a June Supreme Court ruling in the Shishu Pal case that fixed a notional monthly income of ₹30,000 for homemakers while calculating compensation in motor accident claims. According to reports from The Economic Times, insurers estimate the ruling could increase motor third-party claim outgo by 3-4% initially, with the impact potentially rising to 10-12% as courts across the country adopt the interpretation more widely over the next 12-18 months. A senior insurance executive noted that this represents a clear impact due to higher outflow, with provisioning requirements going up and the impact ultimately affecting insurers' profitability.
The ruling's financial implications are already being reflected in insurer results. As reported by The Economic Times, ICICI Lombard General Insurance made an additional ₹165 crore provision towards motor third-party claims in the June quarter following the ruling. The additional provisioning contributed to a 2.8% increase in its combined ratio, taking it to 107.2%. The impact will vary by insurer depending on the size and composition of their motor third-party portfolio, with the majority of women victims being pillion riders in two-wheelers who are homemakers.
The Supreme Court has also directed the Insurance Regulatory and Development Authority of India (IRDAI) to standardise policy wording for occupant and pillion-rider coverage under comprehensive or package motor policies, while allowing insurers to determine the coverage and pricing. According to The Economic Times, the court has also sought clearer segregation of motor insurance covers, which could result in a more defined structure comprising basic third-party liability, occupant or personal accident cover and own-damage protection. This move aims to remove ambiguity over whether occupants of private vehicles are covered under existing policies.
The latest rulings come at a time when motor third-party insurance remains a difficult business for general insurers. As reported by The Economic Times, third-party premiums have risen by less than 2% annually on a compound basis over the past several years, even as claim costs have continued to rise. Insurers are also pushing for stronger enforcement of mandatory motor insurance, highlighting the ongoing challenges in this segment of the insurance market.
