By virtue of powers vested in the Authority under Section 14 (2) (i) of the IRDA Act, 1999, the Authority has been notifying the premium rates applicable to Motor Third Party (TP) Liability Insurance, every year, starting from 2011.

     Further to the notification of the Authority vide order ref: IRDA/NL/ORD/MOTP/051/03/2019 dt: 28^th March,2019, the Motor Third Party Premium rates for the year 2019-20 (ending 31^st March, 2020) for various categories of vehicles, which shall come into force from the date to be notified, have been arrived at as follows:

I.            Data Source and Data Used:

1.     The data provided by the Insurance Information Bureau of India (IIBI) has been used for arriving at the Motor TP premium rates.

2.     The claims paid data in respect of each of the accident years starting from the year 2011-12 up to 2017-18 has been considered, taking into account the combination of ~Class Code~ and ~Vehicle CC/PCC/GVW~ Code.

3.     Gross Written Premiums for the FYs 2011-12 to 2017-18 have been considered.

II.          Basic Methodology

1.   The ultimate claims cost for each accident year has been estimated using the actuarial technique of Basic Chain Ladder Method applied to cumulative paid claims data.

2.     Based on the analysis of paid claims data, cumulative paid claims triangles for valid combinations of class codes and CC/PCC/GVW codes have been populated for AYs 2011-12, 2012-13, 2013-14, 2014-15, 2015-16, 2016-17 and 2017-18.

3.     The main characteristic of the technique is that ultimate claims for each accident year are estimated from the recorded paid values till date, thereby assuming that the future development of payment and movement of paid claims would be similar to the pattern of payment and movement of paid claims during prior years.

4.     The selection of age-to-age-factors (ATAFs) has been done after considering various averages of ATAFs like simple average of all years, volume weighted average, average of last 3 years/ last 5 years, highest of all averages etc.

5.     It is observed that the ATAFs for the most developed periods available are significantly higher than 1.00. This is in line with the fact that motor third party insurance is a long-tail line of business and complete run-off occurs after a significant period of time.

6.     The oldest accident year has 7 years of development, which is generally not sufficient to fully run-off the paid claims for that accident year. Hence, ATAFs for a further 5 years of development have been projected by considering movement of expected future ATAFs on the lines of the past available years of development. A multiplication of these estimated ATAFs is considered as ‘tail factor’. A tail factor would project the paid claims from the latest development period to the ultimate.

7.     The ultimate expected claims for various accident years are estimated by considering cumulative development factors (age-to-ultimate) and the latest cumulative paid amount for a particular accident year. The ultimate claims amount is estimated for each accident year.

8.     Based on the class codes and CC/PCC/GVW codes, financial year-wise Gross Written Premiums (GWP) from the premium data have been populated. The financial year-wise Gross Written Premium have been converted to financial year wise Gross Earned Premium (GEP) by applying the formula:

9.     Ultimate Loss Ratio (ULR) for each Accident year is calculated as Ultimate Claims/Gross Earned Premium

10.  Burning Cost (BC) for each Accident year is then calculated by multiplying Ultimate Loss Ratio and Pure Third Party Premium. The Burning Cost calculated represents the claims cost for only Third Party claims excluding PA claims. Burning Cost has been calculated by considering some of the recent developments post the data period.

11.  By considering the Burning Cost and loading it with appropriate expenses, Premium rates for the FY2019-20 have been derived.

12.     The actuarial rates have been arrived at after factoring in the necessary assumptions and after smoothening, wherever necessary.

III.        As for the Vintage Cars segment, there is no substantial data relating to the past experience. A discounted price of 50% of the proposed rate based on the erstwhile Indian Motor Tariff (IMT) has been proposed for those private cars identified as Vintage Cars by the Vintage and Classic Car Club of India.

IV.         A discount of 15%, on Motor TP premium rates for Electric Private Cars and Electric Two wheelers, is proposed. This will be an incentive to use environment friendly vehicles.

The details of proposed Motor TP premium rates for the various classes of vehicles are tabulated below: 

Table I

Table II

Table III

Table IV

All stakeholders are invited to provide their comments on this exposure draft. The comments should reach the Authority, also by e-mail addressed to janita@irda.gov.in with a copy to srihari.a@irda.gov.in, on or before 29^th May 2019.

                                                                                       (Yegnapriya Bharath)

                                                                   Chief General Manager (Non-Life)