The high proportion of imported components in small cars is denting profits of motor insurance companies, with their claims ratio rising to 70% from 40% in the past two years.

General insurers, who face huge losses in their motor insurance portfolio because of accidents and third-party cover, say replacing damaged imported parts in vehicles is a costly affair.

Claims ratio is the amount an insurer pays as claim on every 100 of premium it earns.

Car sales in India grew at record levels near 30% in the last two fiscals, which also saw automobile companies aggressively push into the below 5-lakh category with new car launches.

"Our data shows the average claim in the passenger car segment has increased from Rs 8,000-10,000 to Rs 10,000-15,000 in the last three years. This has started to eat into the profitability of insurers," Vijay Kumar, president and head of motor insurance at Bajaj Allianz General Insurance, told reporters in Kolkata. Bajaj is the country's third-largest insurer in terms of 'own damage' cover, which insures a policyholder's vehicle.

The percentage of imported parts in the small cars of manufacturers such as Volkswagon, Chevrolet, Toyota and General Motors was high, which was pushing up replacement cost. Consequentially, renewal premiums are also on the rise, said a senior insurance official.

"There could be instances where an individual needs to shell out premiums that are higher in absolute terms than the previous year's. Higher the claims, higher would be the renewal premiums," Kumar said.

A senior Bajaj Allianz official said: "Insurance premiums are a factor of the price of the car. As competition in the small-car segment hots up, manufacturers are adopting aggressive pricing strategies to capture the market. It has resulted in low premium income on account of competitive prices, but high claims ratio as replacement costs are high."

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