How IRDA guidelines since the COVID-19 outbreak affect your motor insurance policy?

Find out the insurance cover you must buy, and the one you can choose to buy, when purchasing a new vehicle.

How IRDA guidelines since the COVID-19 outbreak affect your motor insurance policy

The latest circulars, guidelines, and regulations from the Insurance Regulatory and Development Authority of India (IRDAI) don’t just affect your motor vehicle insurance costs. Many of them have a cascading effect on your compliances and claims as well as the cost of purchase of your car or two-wheeler. Several such new regulations were announced in the past year. Let’s look at the prominent regulations and how they affect you.

Long-term vehicle insurance

To ensure that all vehicle owners purchase a motor insurance policy, in 2018 the Supreme Court made long-term third-party insurance policy cover mandatory for new vehicles. Accordingly, three types of policies were available for new vehicles:

  • Three-year third-party and three-year own damage policy to cover damages for four-wheelers, and a five-year third party and five-year own damage cover for two-wheelers,
  • Three-year third party and one-year own damage policies for four-wheelers and the five-year third-party and one-year own damage cover for two-wheelers,
  • Standalone third-party cover of three years for four-wheelers, and a similar five-year product for two-wheelers.

Related: Benefits of a long-term motor insurance policy

Rethink by IRDA

In a circular that came into effect on 1 August 2020, the IRDA withdrew the mandatory long-term vehicle insurance purchased for the own damage cover of new vehicles. Insurance cost is a part of the ex-showroom price of vehicles, and with this withdrawal, the purchase price of new vehicles would decrease. 

The IRDA had noted that dealers were giving new vehicle buyers only the option of 3+3 years insurance, rather than three years of the third-party cover and one year of own damage insurance. By bundling three or five years of third-party cover with an own damage cover of the same duration, only the second option of the three we mentioned was made available.

As a result, many new vehicle owners were forced to choose a three-year own damage cover for loss or damages, although it was meant to be voluntary. This led to customers being stuck with one policy and insurer for the three-to-five year period, despite unsatisfactory service or experience. Such car owners can now evaluate the choice of insurance company every year instead of being stuck with one insurer. 

Third-party insurance remains mandatory, but its premium amount is fixed by the IRDA. The insurance companies, on the other hand, will be able to price their premium annually rather than fixing it for three years at one go. Own damage cover is recommended for private cars but is optional in India.

Related: 6 Motor Insurance terms you must know before you claim

PUC certificate and insurance claim

The IRDA issued a circular on 20 August 2020 asking insurers to ensure that every vehicle has a valid pollution under control (PUC) certificate while renewing its motor insurance. It further quashed rumours that the absence of a valid PUC can lead to claim amount rejection. It remarked that not having a valid PUC certificate is not a valid reason for denying the claims you raise for damage to your vehicle.

Pandemic-related guidelines

In the interest of the public during the pandemic, the IRDA released a series of directives and guidelines, primarily around motor insurance renewal. For one thing, all motor insurance companies in India were advised to continue charging the same premium rates, as applicable till 31 March 2020, from 1 April 2020 onward till subsequent notice. The timeline for the renewal of policies was relaxed for the policyholders. 

Insurers were instructed to communicate the relaxation to concerned policyholders through email, SMS, telephone, website etc. without delay. Similar instructions were given to agents and intermediaries. The period of cover commenced from the date due renewal without any break in the policy period if it fell during the first phase of lockdown in 2020.

The relaxation was applicable only for the third-party liability component of comprehensive policies, and standalone third-party policies. No relaxation was provided for the own damage component.

Last words

There are benefits of buying a vehicle after finding out more about the latest directives from the relevant authorities, be it the motor transport department or the IRDA. Just as having a sum insured against your vehicle is necessary for your safety, it is useful to know the insurance rules that are relevant for you. The recent changes can be summarised as:

IRDA's surgical strike on the bundling of long-term third-party and own damage insurance
Clarification that invalid PUC cannot get in the way of an insurance claim
A series of guidelines as a response to the COVID-19 pandemic

These recent IRDA guidelines serve to safeguard the interests of new as well as existing vehicle owners.

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