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Supreme Court Rulings Hike Motor Insurance Payouts
13 Aug
Summary
- Homemaker notional income ruling significantly increases motor claim payouts.
- Insurers may need to increase reserves for motor third-party claims.
- Policy standardization for occupant and pillion-rider coverage is mandated.
General insurers in India are bracing for higher reserves related to motor third-party claims following recent Supreme Court decisions. A significant ruling in the Shishu Pal case, effective since June, established a notional monthly income of ₹30,000 for homemakers in compensation calculations. This interpretation is projected to initially increase motor third-party claim outgo by 3-4%, with an anticipated rise to 10-12% over the next 12 to 18 months as courts nationwide adopt this stance.
This increased financial burden is particularly impactful as many women victims are pillion riders, a demographic often including homemakers. ICICI Lombard General Insurance, for example, reported an additional ₹165 crore provision for motor third-party claims in the June quarter, impacting its combined ratio. Concurrently, another Supreme Court directive mandates the Insurance Regulatory and Development Authority of India (IRDAI) to standardize policy wording for occupant and pillion-rider coverage under comprehensive motor policies.
The court also seeks clearer segregation of motor insurance covers, likely leading to a more defined structure encompassing basic third-party liability, occupant/personal accident cover, and own-damage protection. These developments occur as motor third-party insurance remains a challenging segment for insurers, characterized by slow premium growth despite escalating claim costs.
