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IRDAI May Allow 5-year Insurance Policies to Ease Renewal Hassles

August 01 2014

You may soon have a way out of the annual car insurance renewal hassle, replete with the pesky calls and haggling over the amount.

The insurance regulator is considering a proposal to allow insurers to offer policies with a one-time, five-year cover and is expected to issue fresh guidelines on such long-term products. These policies could come cheaper, too. "Some insurers have submitted proposals in this regard and we are evaluating them. We can start with such policies in the two-wheeler segment first," said an official with the Insurance Regulatory and Development Authority (IRDA), adding that based on the experience, similar products for commercial vehicles can be launched

The regulator also aims to use this long-term policy cover to promote insurance, especially in rural areas. "Several companies have pointed out that insurance renewals are not happening, so if we have a long-term product right at the inception, it may also promote the insurance culture," the IRDA official said. As per the latest data, insurance penetration in the country declined to 3.96% in 2012-13 from 5.2% in 2009-10. General insurance penetration in the country stands at 0.78%. The premium underwritten for the motor segment in 2012-13 was `29,777 crores.

The move comes when the government is looking to open the insurance sector and allow 49% foreign direct investment. There are 17 private sector and four PSU general insurers in the country. According to a report by KPMG, the under-penetration is driven by lack of overall financial awareness, lack of understanding of general insurance products, low perceived benefits and propensity to purchase insurance based on reactive drivers such as insistence by financers and statutory requirements.

A senior official with a PSU general insurer said some issues need to be sorted out before such a product is rolled out. "For example, you need a mechanism to factor in the 'no-claim bonus' and subsequently the pricing of such a policy," he said. There are also concerns about the possible liability on such insurance products exceeding the premium received.

At present, there are 10 lakhs outstanding motor third-party claims involving an amount of about `22,000 crores. Customers, though, may not complain, given the hassles of renewal every year, when they are bombarded months before the policy is to expire

 

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