Indian motor insurance segment to shrink 27.2% in 2020

Lockdown measures have snowballed into a decline in premium collections.

India’s motor insurance business will contract 27.2% in 2020 from the 10.1% growth recorded in 2019, according to a GlobalData report.

The segment’s CAGR has been adjusted to 1.1% over 2019 to 2023, a significant decline from the previous forecast of 11.3%.

Recent lockdown measures have adversely affected vehicle sales, said GlobalData analyst Pratyushka Mekala. Passenger vehicle and two-wheel sales plunged 50% and 40% in June respectively, which has impacted motor insurance premium collections.

According to the Insurance Regulatory and Development Authority of India (IRDAI), overall motor insurance premiums inched up 1% in June compared to the previous year, which can be linked to the higher share of renewal premiums.

Motor own-damage sub-segment dropped 2.7% due to fall in vehicle sales. However, the mandatory third-party liability segment reported 3.2% growth during the same period and supported the overall insurance growth in June. The recent regulatory changes following the pandemic also impacted motor insurance premium growth.

In March 2020, the IRDAI put on-hold the proposed 2-10% hike on third-party liability insurance premiums. Furthermore, the move to discontinue long-term own-damage motor policies, effective 1 August, will also result in lower spending on motor insurance this year.

“Despite the gradual revival of the economy, motor insurance business recovery is expected to be stretched. The pressure on new vehicle sales is likely to continue until 2021, resulting in sluggish growth in motor insurance premium,” Mekala concluded.