With the removal of price controls on insurance covers on fire, engineering and motor vehicle since January 2007, non-life insurance companies entered into a price war offering huge discounts ranging from 50 to 75 per cent on property covers and 20 to 40 per cent on cover against damage to self-owned vehicles. The motive was to retain their existing customers and grab new customers. However, these rates have been unsustainable and insurance companies are likely to post losses this year.

There are two types of motor insurance covers. One is third party insurance, which covers for damage to third party property, death or injury in accidents, etc. This cover is mandatory under the Motor Vehicles Act.

The other part of motor insurance is motor own damage cover that is the insurance cover against damage to self-owned vehicles. Insurance companies offer discounts of up to 40 per cent on own damage covers.

"The insurance industry has suffered a loss of more than Rs 1,000 crore on group health insurance policies in 2007-08," said Sandeep Bakhshi, MD and CEO, ICICI Lombard General insurance. "A minimum 30 to 50 per cent rise in premiums for group health covers is inevitable. Discounts of 20 to 25 per cent being offered on motor own damage covers also need to be rolled back."

According to industry officials, the motor third party pool has a deficit of Rs 700-800 crore for 2008-09.