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New IRDAI Regulations A Bid to Boost Motor Insurance Penetration in India

September 01 2019

As per the latest IRDAI directives, vehicle owners can now choose to have third-party and comprehensive motor insurance policies from different insurers

IRDAI Regulations

Despite the fact that third-party motor insurance is mandatory for all cars and two-wheelers plying on Indian roads, data reveals that a fairly large number of vehicles in the country remain uninsured. According to the General Insurance Council (GIC) report of 2016, out of 19 crore registered automobiles in India, only 8.26 crore vehicles had a valid third-party insurance policy.

The problem can be attributed to one of the two main reasons. Either, the vehicle owners don’t take motor insurance renewal seriously and tend to forget to renew their policy periodically, thereby rendering it inactive. Or, they might feel the renewal premium is too expensive against the benefits offered, and hence, do not renew their policy on time.

Automobile insurance laws in India

While buying a comprehensive policy is considered a personal choice, the Government of India has made it compulsory for all vehicle owners to have at least a third-party motor insurance plan. As per The Motor Vehicles Act of 1988, it is mandatory for all vehicles plying on Indian roads to have a valid third-party insurance coverage.

As per the latest amendment to the Motor Vehicles Act, driving an insured vehicle can attract a penalty of ₹2,000 or imprisonment of up to 3 months or both.

However, that being said, the importance of a comprehensive vehicle insurance policy cannot be trivialised. Though a third-party insurance plan can save you from the legal hassles, an own damage (OD) cover is essential to protect your vehicle against the damages that it may incur in case of an accident.

Low adoption of comprehensive motor insurance plans

Despite it being replete with benefits, the compiled data by insurance companies in India has revealed that most of the vehicle owners fail to renew their policy on time. And, when we talk about the penetration of comprehensive plans i.e. third-party liability plus own damage cover, the situation is even more worrisome.

To address the concern, the Supreme Court of India has passed an order in 2018, making it mandatory for all new vehicle buyers in India to purchase a long-term motor insurance policy. However, despite the efforts, a survey disclosed that many automobile owners were unwilling to invest in a comprehensive plan, with 76% of them citing high pricing as the primary reason.

How new IRDAI regulations can help?

In a circular dated 21st June 2019, the Insurance Regulatory and Development Authority of India (IRDAI) instructed the motor insurance companies to sell standalone OD cover to the customers. This will provide more flexibility to vehicle owners in terms of choosing their preferred insurer for third-party cover and own damage cover separately.

Currently, the customers are offered a long term bundled insurance plan – 3-or-5-year third-party cover for car or two-wheeler respectively and 1-year own damage cover – at the time of purchase of a new automobile. However, this meant that after a year, either the vehicle owner has to pay the quoted premium in order to renew the own damage cover or buy a new policy at a higher price.

The new move by IRDAI will now allow the car and two-wheeler owners to purchase a standalone own damage cover, thereby reducing the premium amount to an extent. Moreover, it will also induce more competition among the insurers and hence, can result in further lowering of motor insurance premiums.

A surfeit of choices for the vehicle owners

The new rules by the insurance regulatory body will offer a bag of choices before the vehicle owners when it comes to renewing or purchasing an insurance plan:

Standalone long-term third-party policy – A new vehicle owner can buy a 3-year or 5-year long TP cover for car or bike respectively, from a particular insurer without buying an OD cover.

Separate OD policy – With the new regulations in place, the vehicle owners can now purchase a separate own damage cover either from the existing third-party insurer or from a different insurer.

Bundled OD and TP policy – While it is mandatory for the new vehicle buyers to purchase a long- term third-party insurance, they can choose to purchase a bundled plan that will also include the OD cover for one year or more.

With the multiple options available at their disposal and the premium prices for bundled policies expected to go down further, the new move by IRDAI is deemed as a customer-friendly one by the experts. The withering state of motor insurance penetration is definitely expected to witness a boom in the upcoming days.

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