Rising Costs in the Auto Sector and What It Means for Your Car Insurance Premiums

The automotive sector is undergoing significant changes. Not many years ago, we had manual cars with very limited technologies included in them. However, we now have automatic cars and cars equipped with ADAS technology, such as automatic emergency braking, lane-keeping assist, and more.

Well, all these instruments are expensive and significantly increase your IDV, alongside rising repair and parts costs. Moreover, external reasons such as a rise in GST for motor vehicle insurance from 15% to 18%, the rising population of vehicles, and the number of accidental claims all add up to the rise in insurance prices. Read more to find out in-depth reasons for the rise in vehicle insurance prices.

Impact of Rising Costs in the Auto Sector on Vehicle Insurance

Multiple voluntary and involuntary factors affect the trajectory of vehicle insurance in India. Read more to know about them in detail.

1.     Introduction of ADAS Technology

New cars are equipped with technological features like adaptive cruise control, safety sensors, and a driving assistance system. All of these instruments help make roads safer and prevent accidental damage, which in turn helps reduce car insurance as well as car insurance renewal costs.

However, these parts are costly, which, on the other hand, increases your car’s ex-showroom price, making up for a high initial vehicle insurance cost.

2.     Increasing Vehicle Costs

Electric Vehicles are on the rise. In fact, sales of EVs increased by 34% year-over-year in the second quarter of 2025. Now, EV cars are more expensive than petrol/diesel/CNG fuel variants.

Moreover, advanced safety technology, such as advanced airbags and ABS systems, contributes to increasing the prices of motor vehicles in India.

3.     Higher Repairs and Replacement Parts

New cars enter the market, and old ones get discontinued by the companies now faster than ever. This makes it difficult for service centres to find parts for both discontinued and new vehicles. The rarity of parts or the unavailability of car parts increases service costs, leading to higher insurance prices.

Moreover, repairing technologically advanced cars requires specialised service centres, and rising inflation adds to the repair costs, causing a hike in insurance prices.

4.     Increased Number of Claims

As per reports, every month, 3,00,000 passenger vehicles are sold in India in 2025. This significant increase in vehicles is a primary reason for the rising number of accidents and insurance claims in India. A rise in frequency of claims directly increases your insurance premiums.

Moreover, with the introduction of digital-first platforms in vehicle insurance, making claims is much more convenient for people than it was in traditional times. This catalyses the number of claims and causes a hike in premiums.

5.       Rise in GST

GST on vehicle insurance has increased from 15% to 18%. Suppose you have to pay a monthly premium of ₹15,000, then after implementing 15% GST, it would come to ₹17,250. However, with the increased rate to 18%, you will now have to pay ₹17,700. Which means approximately ₹450 more on every premium.

6.     Delay in Supply Chains

Insurance companies often promise to repair your car at one of their network garages and deliver it back to you at your location as a perk of their comprehensive policy. However, parts for new or discontinued cars are not always available at service centres.

Supply chain delays increase vehicle repair time, raising rental and storage costs that insurers bear. This is another reason for the hike in insurance costs.

Consideration of Rise in Third-Party Insurance by 18% to 25%

The Ministry of Road Transport and Highways (MoRTH) proposed to increase the price of Third-Party Insurance from 18% to 25% in June 2025. However, recommendations from IRDAI regarding this consideration have yet to be made.

But what is the reason for such a proposal?

The proposal was mainly based on increasing motor insurance claims and accident statistics. However, here is a list of other reasons.

●       Rising repairs cost for vehicles.

●       An increase in vehicular density on roads causes a rise in accidents and theft.

●       Higher hospitalisation costs, which are covered under Personal Accident Cover in vehicle insurance.

Final Thoughts

In India, vehicle insurance costs are rising due to various reasons. Most of them are due to regulatory changes or the transforming trajectory of the motor vehicle sector in India.

However, you can still take some steps that may potentially lower your insurance costs. IRDAI now shares traffic challan data with insurers. This will allow them to personalise your insurance price based on your driving behaviour. Driving fewer miles and maintaining a good driving record with minimal violations can help attract lower premiums.