Govt May Hike Third-Party Motor Insurance Premiums by Up to 25%: What It Means for You

The government is considering a significant hike in third-party motor insurance premiums, which could soon impact every car and two-wheeler owner in India. According to sources quoted by a media channel, the Ministry of Road Transport and Highways (MoRTH) is examining a proposal from the Insurance Regulatory and Development Authority of India (IRDAI) to increase third-party (TP) insurance premiums by an average of 18%, with certain vehicle categories potentially facing a steeper hike of 20–25%.

Motor third-party insurance is mandatory under the Motor Vehicles Act for all registered vehicles, including private cars, bikes, taxis, and commercial vehicles. It provides coverage for liabilities arising from damage or injury caused to third parties, such as another person or their property, in the event of an accident. However, it does not cover damage to the policyholder’s own vehicle. The mandatory nature of TP insurance means that a price hike would directly affect every vehicle owner, regardless of their driving record or insurance claims history. 

The premiums for third-party insurance have remained unchanged for the past four years, despite increasing costs and a high volume of claims in the segment. During this period, insurance companies have been grappling with rising loss ratios, a key financial metric that indicates how much they pay in claims versus the premiums collected. For instance, in FY25, New India Assurance — a government-owned insurer — reported a 108% loss ratio on third-party insurance, meaning it paid out more than it earned in premiums. Private insurers such as Go Digit and ICICI Lombard also reported high loss ratios of 69% and 64.2%, respectively.

Given these figures, it can be argued that a revision in third-party premiums is not just necessary but overdue. They estimate that a 20% hike in TP premiums could improve the industry’s combined ratio — a measure of overall underwriting profitability — by around 4–5%, helping insurers maintain financial stability. 

For consumers, the proposed hike could translate into a noticeable increase in annual insurance costs, especially for those purchasing new vehicles or renewing existing policies. For example, a car owner currently paying ₹2,000 in TP premium might see this go up to ₹2,360–₹2,500 if a 20–25% hike is implemented. Since the TP premium is included in the on-road price of new vehicles, a hike will also make buying a new car or a two-wheeler more expensive. Commercial vehicle owners, including fleet operators, cab services, and goods transporters, are likely to feel the pinch more acutely due to the higher base premiums and larger vehicle volumes. 

From a use-case perspective, TP insurance serves a critical role in ensuring legal and financial protection for accident-related liabilities. It shields vehicle owners from potentially huge compensation costs if they are involved in incidents that injure others or damage property. Despite its importance, TP insurance is often misunderstood or overlooked by buyers who focus more on own-damage or comprehensive covers.

MoRTH is expected to make a final decision on the proposed hike in the next 2–3 weeks. If approved, a draft notification will be issued for public consultation — a standard regulatory process that allows stakeholders to share feedback — before the hike is officially rolled out. While this gives consumers some time to prepare, it also raises a timely question: Should you renew your insurance now to lock in current rates?