Vehicle owners in India can expect higher costs for third-party insurance, as the Ministry of Road Transport and Highways is considering a proposal to increase premiums by 18–25% for the 2025–26 financial year.
A recent report reveals that the Ministry is reviewing a recommendation from the Insurance Regulatory and Development Authority of India (IRDAI) to revise these premiums for the first time in four years. The proposed changes would see an average increase of 18% in third-party (TP) motor insurance premiums, with specific vehicle categories facing hikes of up to 25%. A final decision from the Ministry is expected soon.
Why the Premium Increase?
Third-party motor insurance is mandatory for all vehicles under the Motor Vehicles Act. This insurance covers liability for injury, death, or disability caused to a third party. The last major increase in premiums took place between FY13 and FY18, while from FY19 to FY25, premiums were adjusted only marginally, with increases of just 2–3%.
The need for the premium hike comes amid rising costs for insurance claims and ongoing inflation, which have put pressure on insurers’ financial margins. Although net claim ratios for TP insurance remained steady at around 82% in FY23 and FY24, ultimate claim ratios increased to 88% and 91%, respectively. The insurance industry argues that raising premiums is necessary to keep the sector financially stable, especially as compensation for accident-related claims continues to rise.
In a March 2025 investor call, ICICI Lombard MD and CEO Sanjeev Mantri also hinted at a premium revision for the coming fiscal year. Other insurers, such as New India Assurance and Go Digit, have already reported higher claim burdens, with their incurred claim ratios reaching 102% and 65%, respectively, in Q3 FY25.
Impact Across Vehicle Categories
The proposed hike in premiums will affect a wide range of vehicles, from two-wheelers to private cars and commercial vehicles. For example, the current third-party insurance premium for small cars (up to 1,000cc) could increase from Rs 2,100 to Rs 2,500, while premiums for mid-sized cars (1,000–1,500cc) could rise from Rs 3,400 to Rs 4,000.
Efforts to Expand Coverage
In addition to the premium increases, the IRDAI is working to increase insurance penetration in underinsured and rural areas. The regulator has instructed insurers to ensure sufficient coverage for vehicles like tractors, goods carriers, and private cars in these regions.
