General insurance companies and market analysts are worried that slow motor vehicle sales coupled with stagnant third-party premiums may put pressure on loss ratios in FY25.

Data from the Federation of Automobile Dealers Association shows that total retail vehicle sales, including two-wheelers, three-wheelers, passenger vehicles, tractors and commercial vehicles, were down 9.26 per cent year-over-year in September 2024 compared with September 2023 and 8.88 per cent month-on-month compared with August 2024.

Even in August, there was a month-on-month decline of 7.01 per cent from July 2024.

The association said despite the onset of festivals such as Ganesh Chaturthi and Onam, automobile dealers have reported stagnant sales with overall dull market with a trend towards flat or negative growth.

Motor insurance, which comprises own damage cover and mandatory third-party cover, has seen an aggregate year-on-year growth of 10.3 per cent in total premium during April-August 2024, which is slower than the 18.5 per cent year-on-year growth seen in April-August 2023.

“Muted sales of passenger vehicles is one of the reasons for the slower growth in motor insurance premium,” CareEdge Ratings said in a report.

The slow growth in vehicle sales will remain a drag on the collection of total premium in the segment, Emkay Research said in a report on the second quarter preview of the insurance sector.

Moreover, there has been no revision in the third-party rates, which are regulated by the IRDAI in the last two years.

The combined loss ratio for the insurance industry — measured by adding incurred losses and expenses and dividing by total premium — was 118.5 per cent in FY24 and insurers expect this could come under pressure with claims and awards on the rise. Among the private players, there is a cautious approach in underwriting policies, particularly in the large commercial vehicles segment.

“For the last two years, motor third-party rates have not been revised and this affects the general insurance companies, particularly more for the government companies. On top of that, there has been a dip in motor vehicle sales. We have to see how the sales play out during Diwali,” said T. Babu Paul, executive director, National Insurance.

“We continue to pursue because at the industry level, there is still a need in some segments to see an increase and maybe there are some segments where there can be a decrease also on third party to overall rebalance the book,” said Sanjeev Mantri, MD and CEO, ICICI Lombard General Insurance.