Six years after the last revision, the Insurance Regulatory and Development Authority of India (IRDAI) is considering a 10-25% increase in Motor Third Party (TP) insurance premiums. The proposal, which has been under consultation since early 2026, would mark the first upward revision since 2020 and has significant implications for vehicle owners across India.
Current Premium Structure
Under the existing framework, annual TP premiums for private cars are tiered by engine capacity: small cars (up to 1,000cc) pay Rs 2,100, mid-size cars (1,000-1,500cc) pay Rs 3,400, and large cars (above 1,500cc) pay Rs 7,897. These rates have remained unchanged since 2020, even as claim costs have risen substantially.
For commercial vehicles, the current annual TP premium ranges from approximately Rs 16,000 for light goods vehicles to over Rs 70,000 for heavy passenger vehicles.The Case for Revision
The Motor Third Party insurance pool has been under severe financial stress. Rising claim costs — driven by higher medical expenses, third-party injury compensation awarded by Motor Accident Claims Tribunals (MACT), and inflation in vehicle repair costs — have pushed the combined ratio of the motor TP book well above 100% for most insurers.
According to industry estimates, the cumulative underwriting loss in the motor TP segment exceeded Rs 15,000 crore over the past three years. Without a premium correction, this deficit threatens the financial sustainability of the motor insurance pool.
Age-Linked Premium Formula
The proposed reform also introduces an age-linked premium structure. Older vehicles, which statistically present higher risk profiles due to wear and tear and outdated safety features, would attract higher TP premiums. A vehicle older than 10 years could see a TP premium surcharge of 15-20%, while vehicles under 3 years may receive a marginal discount.
This is a significant departure from the current flat-rate structure and is expected to incentivize vehicle owners to maintain their vehicles better and potentially retire older, less safe vehicles from the road.
Commercial Vehicles: The Biggest Hit
Commercial vehicle owners face the steepest proposed increases — in the range of 18-25%. Heavy goods vehicles and passenger carriers, which generate the largest claims due to their involvement in severe accidents, will bear the brunt of the revision.
However, there is a policy consideration to hold TP premiums steady for school buses, given the social objective of keeping student transport affordable. This carve-out, if implemented, would provide relief to an important segment.EV Discount: The Green Incentive
Electric vehicles will continue to enjoy a 15% discount on TP premiums under the proposed framework. This green incentive, originally introduced in 2024, aims to lower the total cost of ownership for EVs and accelerate the transition to electric mobility.
Combined with the lower running costs of EVs, the TP discount makes electric vehicles increasingly cost-competitive from an insurance perspective over the vehicle's lifetime.
Impact on Vehicle Owners
For a typical mid-size car owner, the annual insurance cost could increase by Rs 340-850, depending on the final hike percentage. While this is a relatively modest amount, the cumulative impact across the 35 million+ vehicles registered annually is substantial.
Industry experts suggest that the revision, while necessary, should be accompanied by measures to improve claims efficiency and reduce fraud, ensuring that the additional premium translates into better protection rather than higher insurer margins.
Sources: Economic Times (April 2026), NewsBytesApp Motor Insurance Analysis, VahanBazaar Premium Calculator, IRDAI Consultation Paper