Car Insurance Premiums Are Due For A Hike, Believes Acko's Varun Dua

If your car insurance feels oddly affordable in 2025, that’s because it is. At least, on the third-party front. But not for long.

"We’re due for a hike soon," cautioned Varun Dua, founder and chief executive officer of Acko General Insurance, referring to third-party motor insurance premiums that have not significantly changed in four years. "Third-party is decided by the government. So, premiums are likely to get slightly more expensive sooner or later."

And this isn’t just industry chatter. The Insurance Regulatory and Development Authority of India is widely expected to revise third-party motor premiums, the mandatory portion of your car insurance, this year. As per data from the IRDAI’s 2024 Exposure Draft, the cost of third-party claims has been growing at 11–12% annually, driven by rising court awards, accident fatalities, and inflation.

There's a prevalent misconception that car insurance is a monolithic product. It's actually made up of two components – third-party insurance and own damage cover.

Third-party insurance is mandatory, covers liabilities towards others, and the premium is fixed annually by the government. Own-damage insurance, on the other hand, is optional and covers damages to your vehicle. It covers your car against theft, fire, accidents, natural calamities, etc., and the pricing is determined by individual insurers.

While third-party premiums have been flat since 2019, OD premiums have steadily crept up. "We have seen that keep going up by anywhere between 5 to 10% every year," Dua said. The reasons? Rising labour costs, pricier spare parts, and more sophisticated vehicles.

As of May 2025, the IRDAI hasn’t formally released new third-party premium rates, but insurers are preparing for a revision.

The last hike came in April 2023 after a four-year freeze during Covid-19 period. However, the increase was minimal, around 3-5% for most car categories. According to the General Insurance Council, claim severity has outpaced premium growth, with loss ratios—claims paid versus premium earned—on third-party business crossing 100% in some segments.

This year’s hike, if implemented, would correct that mismatch. Expect the cost of insuring your vehicle to rise by a few hundred to a few thousand rupees depending on engine size and car category.

Beyond the price hike, Dua said, many customers don’t fully understand what their policy covers. "One of the things that’s mostly a misnomer is that insurance covers when there is an accident. An event needs to happen," he explained.

He gave a common example: during monsoon, if your parked car is waterlogged and the engine gets damaged when you try to start it, your standard policy likely won’t pay. That’s because there was no 'accident' in the traditional sense.

Unless, of course, you have the right add-ons.

"Between Zero Dep and Engine Protect is where 80% of the uses are," Dua said, referring to the two most valuable policy extensions.

Zero depreciation cover ensures you don’t pay out of pocket for part wear-and-tear during claims. Engine protect covers non-accidental water damage to your engine, and this is highly recommended in flood-prone cities like Mumbai, Bengaluru, and Chennai.

Another major red flag Dua points to is bundled insurance sold through car dealerships. "Customers in India have lost thousands of crores of rupees over the last 5 years collectively… because that’s the amount of commission that gets bundled in a new car."

Private insurers like Acko, which operate direct-to-consumer, often price policies 25–50% lower than those sold via dealers. Yet many buyers still default to whatever the showroom pushes during a vehicle purchase.

The IRDAI has also flagged concerns around lack of transparency in motor insurance distribution, especially for first-time buyers, in the past.

When accidents happen, car owners often leave the paperwork to the workshop. Dua believes this is a bad idea, because "it’s in the interest of the workshop to increase the billing as much as possible."

The result? Your claim amount, and next year’s premium, can go up unnecessarily. Instead, Dua recommended using your insurer’s app to file the claim directly. Private insurers also offer door-to-door pickup, real-time tracking, and cashless repairs across a wide network.

As Dua puts it, being proactive about your insurance choices could save you thousands, both now and when that hike finally kicks in. "Customers who don’t know what they’re buying often end up overpaying or being under-covered."

For more of Dua's insights on car insurance, tune into this episode of Your Money Matters.