How has the motor insurance industry responded to the lockdown?

In May 2020, the Confederation of Indian Industries (CII) suggested that the government should institute a business stimulus package of at least 3% of the GDP. This was not surprising, considering that the effect of lockdown was evident across sectors. Hospitality, manufacturing, transportation, logistics – indeed, every sector was reeling under the immense financial pressure caused by the lockdown. 

The insurance industry – motor insurance in particular – is no exception. With most vehicles going off the roads, April 2020 saw dismal sales figures in motor insurance. A Times of India report said that the year-over-year motor insurance sales in April saw a fall of 49%. Other general insurance sectors like marine, aviation, and personal accident saw declines of 5%–40%. Third-party general insurers posted an underwhelming 7.3% y-o-y growth, while there was a decline of 2.7% in the own damage category. 

IRDAI's key guidelines

The lockdown has touched FY 2019–20 only marginally. Given the impending effect, the Insurance Regulatory and Development Authority of India (IRDAI) issued a circular to protect the interests of the insurance companies and policyholders. Some of its key guidelines were as follows:

• Ensure maintenance of essential insurance services
• Adopt a business continuity plan
• Set up a crisis management committee to avoid business disruption
• Make plans to cover the risk of COVID-19 and devise a mechanism to deal with related claims
• Offer a relaxation in travel insurance policy charges in case of travel deferment
• Offer a relaxation of 30 days in the dispatch of policy documents issued between 15 March 2020 and 30 April 2020
• Offer a relaxation of 21 days in handling complaints received between 15 March 2020 and 30 April 2020

Related: New IRDAI regulations for motor insurance

Reaction from insurance companies

As the window for motor insurance renewal was extended till 15 May, premium collection dipped during the lockdown period. In April, general insurance premium collection declined by over 10%. In this scenario, insurers began implementing various steps and strengthening their existing framework to brace for the impact of the lockdown. Let’s look at some of these measures:

• Online purchase and renewal: Insurers are encouraging and promoting the online sale of policies with renewed vigour. Online business dovetails perfectly with COVID-19’s social distancing norms. And so, online renewals are being promoted as a hassle-free way of staying insured. This includes online renewal of overdue policies as well.
• Free insurance: With vehicles remaining idle for days, insurers are offering extended insurance cover on its policies. This way, policyholders may stand to get 13 months’ motor insurance cover for the price of 12 months' worth of premium. Acko General Insurance promoted this as an industry-first initiative to entice customers. This strategy is also being applied by many insurers overseas.
• A personal touch: While renewal deadlines were extended, insurers informed their customers about the merits of timely renewal. General perception was that there is no point in renewing the insurance policy of cars that are anyway lying idle in the garage. However, insurers pointed out that even idle cars may need coverage; for example, in case of natural calamities. Besides, if the policy lapses and physical inspection becomes mandatory, the policyholder may have to forfeit the no-claim bonus. Further, the premium may go up and online renewal may not be possible.

Related: Benefits of a long-term motor insurance policy

• Cost-cutting measures: There have been instances of employee lay-offs in the insurance sector. Salary cuts have also been introduced at the leadership level as a reaction to the pandemic. Insurers are looking to capitalise on the cost savings that can be achieved through digitisation of the sale and settlement process.
• Online settlement: Online claim lodging and claims through calls are being encouraged and publicised. Inspections are done virtually through photographs provided by the customer. As insurance companies too have been working remotely, contactless claim processing is becoming more and more relevant. Claim settlement through the insurer’s app increased significantly during the lockdown.

Related: 8 Factors to review before renewing your motor insurance policy

Last words

A natural outcome that has worked in favour of the motor insurance industry is the decrease in the number of claims. Fewer vehicles on the road means there are fewer chances of collisions and vehicular damages. Claims in India dropped to a tenth of the normal rate during April 2020, according to an Economic Times news report. Even after the relaxation of the lockdown, claims are around 50% of the normal rate. This dip has cushioned motor insurers and ensured that the lockdown doesn’t deal a knockout blow to the industry. Read what IDV is all about and why Insured Declared Value is important.