Supreme Court rulings set to raise insurers' third-party liability

Mumbai: The Supreme Court's recent rulings on motor third-party liability could compel insurers to raise reserves, potentially impacting their profitability. The June 2023 judgment in the Shishu Pal case, which set a notional monthly income of ₹30,000 for homemakers in calculating compensation, is expected to initially increase motor third-party claim outgo by 3-4%, with the impact potentially rising to 10-12% over the next 12-18 months, according to insurers.

This is due to the higher outflow of funds. A senior insurance executive stated that the provisioning requirement will rise, impacting insurers' profitability. ICICI Lombard General Insurance, for example, made an additional ₹165 crore provision for motor third-party claims in the June quarter following the ruling, which contributed to a 2.8% increase in its combined ratio to 107.2%.

Another Supreme Court decision regarding occupant and pillion-rider coverage under comprehensive or package motor policies may also affect insurers. The court has directed the Insurance Regulatory and Development Authority of India (IRDAI) to standardize policy wording for such covers, allowing insurers to determine the coverage and pricing.

The court's push for clearer segregation of motor insurance covers could lead to a more defined structure. However, third-party premiums have risen by less than 2% annually over the past few years, despite claim costs continuing to increase, making motor third-party insurance a challenging business for general insurers. Insurers are also advocating for stronger enforcement of mandatory motor insurance.