Page 23 - Insurance Times November 2021

Approach I : The element of incidence improvement (Rs 7016/-)
Average actual premium rate for 2002-03 is Rs 298/- mentioned in approach II above workouts to be 23 times
the premium of 2002-03 of Rs 298/- Thus the increase of six
Removal of Incidence impact 80% reduction Rs 238/-
(6) times mentioned in the para after table II can be
The premium for 2019-20 should have been Rs 060/- analysed as follows.
(assuming other factors to have remained unaltered)
Inflation should have increased this premium Incidence improvement (-) 23/24 times
of Rs 60 to (60*289/105) Rs 165/-
Inflation 17/18 times
Inflationary content in Rs 1754 Premium
of 2019-20 Rs 1117/- Other factors 10/11 times
(1754-(1754/289*105), alternatively (1754-637) refer
table IV above) Having attempted to quantify and separate the contribution
of factors of Incidence, Inflation and Quantum of relief in
The total increase in premium being 28 times, once we
the increase in premium rates, now we can try to further
separate the impact of inflation from total increase the direct the contribution of quantum of relief which appear
balance will naturally represent the impact of quantum of to have led to 10/11 times increase / change in the premium
relief. Hence the above figures can be used to quantify the rates. In view of absences of factual data to facilitate this
impact of inflation as well as that of quantum of relief. The analysis, the inferences are drawn based on deductive
inflationary content of Rs 1754 is Rs 1117/- (1754-(1754/ reasoning, from relevant common knowledge. Let us
289*105) (refer table IV above). Thus the inflation impact continue our analysis.
of Rs 1117/- amounts to 18.61 times the incidence adjusted
premium of Rs 60/-. Actual premium of Rs 1754/- against
the expected premium (with inflation) of Rs 165/- represents 3. Quantum of Relief :
the impact of factors other than inflation and incidence. This a) Legal provisions :
is 11 times. The Insurance of vehicles for third party liability is a
statutory mandate. The scope of the coverage is also defined
Approach II : in the law. The said law in India is "The Motor Vehicle Act".
Average premium rate for 2019-20 is Rs 1754/- Hence any change in the provisions of the Motor Vehicle
Remove the hidden benefit of incidence Act is a factor which might affect the claims experience and
reduction of 80% Rs 7016/- thereby the premium rating. The Motor Vehicle Act has seen
several amendments during these years. Though some of
The premium for 2019-20 (without incidence
benefit) should have been Rs 8770/- the amended provisions are yet to be notified, many
changes have already been operationalised. The changes in
Remove the inflationary content amount of no-fault liability and solatium payments have
(8770-(8770/289*105)) Rs 5584/- definitely contributed in some measure to the increasing
The average premium (without inflation claims experience. They were made effective only from the
and without incidence benefit) Rs 3186/- middle of 2019. Hence the impact of these changes remains
minimal. Considering the number of cases and the amount
Inflation content of Rs 5584/- on original premium of Rs 298 of increase in the compensation of such claims (in
works out to 18.73 times. Similarly the current premium comparison with he total amount of claims), all those
(without inflation and without incidence benefit) of Rs 3186/ familiar with the mechanism will agree that extent of their
- compared with premium of Rs 298/- of 2002-03 works out contribution in increasing the rates is not likely to be really
11 times This represents the impact of factors other than
significant. Therefore operationalised changes in legal
incidence and inflation. Both results are similar to the results
provisions can not be faulted for hefty increase seen in
of approach I. (Since the premium is per vehicle the increase premiums.
in number of vehicles makes no difference)
b) Profile of the victims, like age, income/
Thus the increase of 28 times in premium figure (from Rs
60/- to Rs 1754/-) can be summarised as follows. occupation, and dependency.
The amount of compensation (except for 'no fault liability')
Caused by Inflation : about 17/18 times depends on the profile of the victims. India has seen

Caused by Quantum of relief : about 10/11 times significant socio-economic and demographic changes during

The Insurance Times, November 2021 23