Government Mulls Steep Hike in Two Wheeler Insurance Premiums

Millions of two-wheeler riders across the country face a significant financial blow as the government is actively considering a sharp increase in mandatory insurance premiums. This potential hike, currently under review by authorities, could dramatically raise the cost of owning and operating bikes and scooters. The proposed adjustment comes amid growing concerns over rising road accidents and increasing claim payouts for insurance companies, forcing officials to re-evaluate existing insurance structures.

If approved, this decision will directly impact daily commuters and families, adding another burden to their household budgets and making two-wheeler ownership notably more expensive in the near future.

Understanding the Current Discussions

The government is currently reviewing a proposal that could lead to a significant increase in the cost of two-wheeler insurance. This discussion centers on adjusting the premiums for mandatory third-party motor insurance. The Insurance Regulatory and Development Authority of India (IRDAI) has put forward a recommendation to the Ministry of Road Transport and Highways (MoRTH) for these changes.

Official sources indicate that the proposed hike could see an average increase of about 18% in third-party insurance premiums. Some types of vehicles might even face steeper increases, possibly ranging from 20% to 25%. Another report suggests an average increase of around 10%. Third-party motor insurance is a requirement by law for all vehicles on the road, including two-wheelers, as per the Motor Vehicles Act. This type of insurance covers damages or injuries caused to another person or their property by the insured vehicle. It does not, but it covers damage to the policyholder's own vehicle.

Why Premiums Might Go Up

The main reason behind the proposed increase is the financial pressure faced by insurance companies. For the past four years, the premiums for third-party insurance have mostly stayed the same, with only minor adjustments made in 2022 and 2023. During this period, the costs associated with medical treatments and legal settlements for accident victims were incurred. Vehicle repairs have risen considerably. This has led to insurance companies paying out more in claims than they collect in premiums, a situation reflected in their 'loss ratios.'

Insurers have been reporting high net claims ratios, with ultimate loss ratios increasing, which highlights a need for premium adjustments to ensure their financial stability. Industry experts say the proposed hike is necessary to maintain actuarial viability and support the growing compensation payouts in accident claims. Insurance companies had previously requested an increase of 5-15% starting in April 2025, citing pressure from increasing court awards and claim payments.

What This Means for Two-Wheeler Owners

If the proposed premium hikes are approved, two-wheeler owners will likely see higher costs when buying new insurance or renewing existing policies. This change would make owning and maintaining a two-wheeler more expensive. The impact will be particularly felt by those buying new two-wheelers, as the third-party premium is included in the overall cost of the vehicle. For daily commuters and those who rely on two-wheelers for work, any increase in running costs can be a significant concern.

An expert noted that even a seemingly small increase can affect the buying decisions of customers, especially for entry-level two-wheelers, where affordability is a key factor. Rising insurance premiums, alongside other cost increases, make it harder for these buyers.

How Two-Wheeler Insurance Premiums Are Decided

Several factors play a role in how two-wheeler insurance premiums are calculated. For third-party insurance, the engine capacity of the two-wheeler is a major determinant. Generally, bikes with larger engine capacities attract higher premiums because they are associated with greater power and speed, which can increase the risk of accidents and higher claim amounts. The IRDAI is responsible for setting the premium rates for third-party liability insurance each year, based on the engine size of the vehicle.

For comprehensive two-wheeler insurance policies, which cover both third-party liabilities and damage to the owner's vehicle, other factors also come into play:

• Type of Vehicle: The make and model. The age of the bike influences the premium. Newer, higher-end, or sports bikes typically have higher premiums.
• Insured Declared Value (IDV): This is the maximum amount the insurer will pay if the bike is stolen or completely damaged. A higher IDV results in a higher premium.
• Engine Capacity: As mentioned, higher cubic capacity (cc) often means higher premiums.
• Rider's Details: Factors like age and riding history can affect premiums. Younger riders might pay more due to higher perceived risk.
• Location: Owning a bike in urban areas with more traffic or higher theft rates can lead to higher premiums.
• Add-on Covers: Choosing extra covers like zero depreciation, roadside assistance, or engine protection increases the overall premium.
• Anti-Theft Devices: Installing approved security features can sometimes lead to lower premiums.
• No Claim Bonus (NCB): Riders who do not make claims for several years can get discounts on their own damage premium during renewal.
• Voluntary Deductible: Opting to pay a larger share of the repair cost yourself can lower the premium.

What Happens Next

The Ministry of Road Transport and Highways is actively reviewing the proposal from IRDAI. A final decision on the premium adjustments is expected in the coming weeks. Once the Ministry gives its approval, a draft notification will be released. This notification will allow various stakeholders, including vehicle owners and industry bodies, to provide their feedback before the new rates are put into effect.

The implementation of these revised premiums could potentially take place by the middle of the current financial year, possibly from October 1, 2025, or at the start of the next financial year, April 1, 2026. This period of consultation aims to ensure that any changes are fair and sustainable for both insurance providers and those who hold policies.

The government is considering several key points during this review process:
• If higher premiums should be applied to riders with traffic violations.

• Whether to implement a graded premium hike across different vehicle types or a uniform increase.

This move is aimed at making sure the insurance sector remains strong, which in turn helps guarantee that accident victims receive timely and proper compensation.

Also Read: Hero MotoCorp and Thums Up Collaborated to Cheers Youth Spirit With Thunderwheels 2.0, Featuring the Hero Xtreme 250R