Favourable auto sales mix driving growth in motor insurance premium: Report

Motor insurance premium growth: The motor insurance premium has displayed a compound annual growth rate (CAGR) of 5.5 per cent over the period financial year 2020-2023 (FY20-23), with year-to-date (YTD) growth standing at an impressive 15 per cent, analysts noted. 

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Specifically, motor own damage (OD) has shown a three-year CAGR/YTD growth of 6.2 per cent/18 per cent, while third-party (TP) Motor segment has seen a CAGR/YTD growth of 5.1 per cent/11 per cent.

The auto industry sales for passenger vehicles (PV) and two-wheelers (2Ws) have registered a three-year CAGR of 12 per cent and -4 per cent, respectively, while YTD growth stood at 9 per cent and 12 per cent, respectively, brokerage firm Motilal Oswal said in its note. 

New vehicle sales majorly contribute to the motor segment's insurance premium, with a stronger correlation observed with the value growth of the industry rather than volume growth.

Several trends in the auto industry, including the rising share of Utility Vehicles (UVs), preference for top-end models, growing adoption of Compressed Natural Gas (CNG) and Electric Vehicles (EVs), acceptance of automatic variants, and the popularity of scooters and higher cc two wheelers (2Ws), have positively impacted the motor insurance industry, brokerage firm highlighted.

Structural shifts such as these are expected to support the growth of motor insurance premiums even during phases of slow auto sales growth. However, the insurance premium for CNG, automatic, and UV vehicles is notably higher compared to their counterparts in the same variant or category.

The passenger vehicle segment has also seen notable changes in its product mix, with a considerable increase in the share of customers opting for top variants. 

Additionally, the preference for CNG vehicles has been rising steadily, while the share of automatic variants is expected to increase further in the coming years, Motilal Oswal said.

The adoption of EVs in passenger vehicle sales has shown promising growth, with increasing infrastructure for charging and a growing range of EV options contributing to the trend. 

However, challenges such as claim experience due to higher share of plastic parts and limited availability of spare parts are being addressed as the EV market matures, the Mumbai-based brokerage added.

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In the two-wheeler segment, the rising share of scooters and premiumisation of motorcycles have been observed. Scooter sales have increased driven by launches, favourable demographics, and poor availability of public transport in lower-tier cities.

Despite challenges in market share in the motor segment, ICICI Lombard General Insurance Company (ICICIGI) aims to improve its position, particularly in the EV segment where it holds a dominant share. 

Overall, the favourable product mix trends are expected to sustain over the medium term, supporting healthy growth in motor insurance premiums.

Considering these factors, Motilal Oswal analysts maintain a positive outlook with a ‘buy’ rating on ICICI Lombard General Insurance with a one-year price target of Rs 1,900 per share.

As of 10:43 am, shares of the insurance company were trading 0.92 per cent higher at Rs 1,662.60 per share.