- Date : 21/03/2020
- Read: 7 mins
Some recommendations from IRDAI that will affect your car’s insurance policy.
Motor insurance provides protection against any claims made by or against the insured for damages or injuries inflicted upon or losses borne by the insured or the third party or both, based on the type of the policy obtained, for all possible unforeseeable and untoward incidents arising with the acquisition or usage of a vehicle.
In India, motor insurance is a prerequisite that comes bundled with the vehicle. Generally, this is in the form of third-party cover – a statutory and mandatory requirement for any vehicle plying on public roads. The Insurance Regulatory and Development Authority of India (IRDAI) recently proposed some pertinent recommendations in this regard, which are outlined below:
1. More straightforward calculation of sum insured
When you buy a standard motor insurance policy in India, the Insured Declared Value (IDV) is usually the cost of the car minus its age-wise depreciation. The moment a car leaves the showroom, its IDV falls by 5%.
For example, if a new car costing Rs 8 lakh is damaged beyond repair or stolen within 6 months of purchase, its reimbursement value will be Rs 7.6 lakh. Similarly, if an unfortunate event leads to complete and irreversible loss of the car after 6 months of purchase but within a year, the insurance company may decide to deduct 15% from the cost of the car while fixing the IDV.
Under the new proposal, the IDV will remain consistent for 3 years with no depreciation. In the fourth year, the accumulated depreciation will come into effect, and age-wise depreciation will be deducted from the IDV thereafter. Hence, in case of a total loss of the car due to accident or theft within 3 years of purchase, you’ll be reimbursed not just the on-road vehicle price, but also for any manufacturer accessories as well as road tax/registration.
Related: Benefits of a long-term motor insurance policy
2. Fewer complications in case of OD policy renewal
Third-party car insurance is mandatory. However, under current terms, if you opt for an ‘own damage’ (OD) policy later, the validity of the standalone OD policy will exceed the expiry of the third-party car insurance policy.
Under the new proposal, regardless of when you opt for the standalone OD policy, its expiry will coincide with that of the third-party insurance. If you choose the OD policy later, the issuer will issue the standalone policy on a pro-rata basis, ensuring that its validity does not exceed that of the third-party car insurance policy.
This will streamline the process of motor insurance renewal, as the insured can renew multiple policies at once instead of having to renew different types of motor insurance with varying dates of expiry for the same vehicle.
3. Driving habits to affect the insurance premium
At present, the insurance premium of various types of motor insurance policies is determined based on parameters like IDV of the vehicle, its make and model, and geographical zone. But now, the IRDAI has proposed a central repository tool of telematics data that can be used to monitor, collect, and collate data related to driving habits.
Telematics is a method to monitor and capture data related to your vehicle through a built-in GPS system. This data can be used to assess the risk profile of the insured. This way, your insurance premium will be determined on how reckless or safe you drive. If you drive slow and/or less often, you’ll pay a lower premium compared to someone who drives rashly, given the same make and model of vehicle.
Related: New IRDAI regulations for motor insurance
4. Standardised slabs for NCB
No-claim bonus (NCB) is the discount an insured can avail of at the time of the renewal of the policy for not making a claim in the previous years. It is offered only for OD policies. Each insurer has defined its own NCB slabs for long-term policies, which makes it cumbersome for the insured if they wish to switch to another insurer.
Going forward, a standardised grid for NCB will ensure that the insured can transition to another insurer and still avail of the benefit of NCB for not having made a claim in previous years with the former insurer. Also, the NCB will be linked to the policyholder; so if the proposal is accepted, the insured can claim NCB on the next vehicle of the same class on which it was earned.
5. Giving up of RC to process theft claim
In case of theft claims, the IRDAI will demand the claim be settled only on the presentation of a cancelled registration certificate (RC) of the vehicle. This will make it difficult for stolen cars to make their way back on the roads.
6. Compulsory deductibles to be termed as standard
The ‘compulsory deductible’ is the amount the insured must bear before the insurer processes the claim. As of now, this is linked to the engine capacity of the vehicle; it is Rs 2000 for private cars with engines over 1500cc, and Rs 1000 for those with engines 1499cc and below.
The IRDAI has demanded no waiver of the standard deductible. It has proposed a revised deductible ruling, where the standard deductible will be linked to the value of the vehicle. It has also proposed an increment in the standard deductible for second or subsequent claims in a bid to discourage unsafe driving.
7. Depreciation regulation based on the age of the vehicle
The IRDAI proposes age-based depreciation for partial losses. Currently, a 50% depreciation is applied to certain parts of the vehicle (such as rubber and plastic parts) regardless of the age of the vehicle. The insurer would also exercise its own discretion to settle the claim amount.
But now, a standard grid has been proposed for all parts after taking the age of the vehicle into consideration. This eliminates any subjectivity on the part of the insurer and ambiguity on the part of the insured and reduces the probability of any malpractices.
Related: Types of motor insurance policies you should know about
8. Insurance for co-passengers
The IRDAI proposes that all the co-passengers in an insured vehicle shall be eligible for a cover of Rs 25,000 to meet medical expenses in case of any bodily injuries and harm arising due to an unfortunate event such as an accident.
9. Named driver policy
The IRDAI has proposed a ‘named driver’ policy, where the policy doesn’t provide coverage to all the individuals residing in the insured’s household. Specific drivers will be listed by name, which should result in a reduction in the premium amount due to the reduced risk occasioned by only specific qualified drivers using the vehicle.
10. Separate third-party insurance category for EVs
To encourage the sale of ‘greener’ electric vehicles (EVs), third-party motor insurance premium for electric cars will be eligible for a discount of 15% when compared to general private cars of similar categories.
Last words
The IRDAI is continually taking steps to make the purchase of motor insurance simpler and more straightforward. One can now buy motor insurance online by filling some details and uploading a few documents. The IRDAI is endeavouring to remove subjectivity and ambiguity while reducing the probability of fraudulent claims and malpractices. This will benefit the insurer, who is expected to pass on this benefit to the insured in the form of reduced premiums and useful add-ons. Take a look at these 6 Motor Insurance terms you must know before you claim your motor insurance.
Motor insurance provides protection against any claims made by or against the insured for damages or injuries inflicted upon or losses borne by the insured or the third party or both, based on the type of the policy obtained, for all possible unforeseeable and untoward incidents arising with the acquisition or usage of a vehicle.
In India, motor insurance is a prerequisite that comes bundled with the vehicle. Generally, this is in the form of third-party cover – a statutory and mandatory requirement for any vehicle plying on public roads. The Insurance Regulatory and Development Authority of India (IRDAI) recently proposed some pertinent recommendations in this regard, which are outlined below:
1. More straightforward calculation of sum insured
When you buy a standard motor insurance policy in India, the Insured Declared Value (IDV) is usually the cost of the car minus its age-wise depreciation. The moment a car leaves the showroom, its IDV falls by 5%.
For example, if a new car costing Rs 8 lakh is damaged beyond repair or stolen within 6 months of purchase, its reimbursement value will be Rs 7.6 lakh. Similarly, if an unfortunate event leads to complete and irreversible loss of the car after 6 months of purchase but within a year, the insurance company may decide to deduct 15% from the cost of the car while fixing the IDV.
Under the new proposal, the IDV will remain consistent for 3 years with no depreciation. In the fourth year, the accumulated depreciation will come into effect, and age-wise depreciation will be deducted from the IDV thereafter. Hence, in case of a total loss of the car due to accident or theft within 3 years of purchase, you’ll be reimbursed not just the on-road vehicle price, but also for any manufacturer accessories as well as road tax/registration.
Related: Benefits of a long-term motor insurance policy
2. Fewer complications in case of OD policy renewal
Third-party car insurance is mandatory. However, under current terms, if you opt for an ‘own damage’ (OD) policy later, the validity of the standalone OD policy will exceed the expiry of the third-party car insurance policy.
Under the new proposal, regardless of when you opt for the standalone OD policy, its expiry will coincide with that of the third-party insurance. If you choose the OD policy later, the issuer will issue the standalone policy on a pro-rata basis, ensuring that its validity does not exceed that of the third-party car insurance policy.
This will streamline the process of motor insurance renewal, as the insured can renew multiple policies at once instead of having to renew different types of motor insurance with varying dates of expiry for the same vehicle.
3. Driving habits to affect the insurance premium
At present, the insurance premium of various types of motor insurance policies is determined based on parameters like IDV of the vehicle, its make and model, and geographical zone. But now, the IRDAI has proposed a central repository tool of telematics data that can be used to monitor, collect, and collate data related to driving habits.
Telematics is a method to monitor and capture data related to your vehicle through a built-in GPS system. This data can be used to assess the risk profile of the insured. This way, your insurance premium will be determined on how reckless or safe you drive. If you drive slow and/or less often, you’ll pay a lower premium compared to someone who drives rashly, given the same make and model of vehicle.
Related: New IRDAI regulations for motor insurance
4. Standardised slabs for NCB
No-claim bonus (NCB) is the discount an insured can avail of at the time of the renewal of the policy for not making a claim in the previous years. It is offered only for OD policies. Each insurer has defined its own NCB slabs for long-term policies, which makes it cumbersome for the insured if they wish to switch to another insurer.
Going forward, a standardised grid for NCB will ensure that the insured can transition to another insurer and still avail of the benefit of NCB for not having made a claim in previous years with the former insurer. Also, the NCB will be linked to the policyholder; so if the proposal is accepted, the insured can claim NCB on the next vehicle of the same class on which it was earned.
5. Giving up of RC to process theft claim
In case of theft claims, the IRDAI will demand the claim be settled only on the presentation of a cancelled registration certificate (RC) of the vehicle. This will make it difficult for stolen cars to make their way back on the roads.
6. Compulsory deductibles to be termed as standard
The ‘compulsory deductible’ is the amount the insured must bear before the insurer processes the claim. As of now, this is linked to the engine capacity of the vehicle; it is Rs 2000 for private cars with engines over 1500cc, and Rs 1000 for those with engines 1499cc and below.
The IRDAI has demanded no waiver of the standard deductible. It has proposed a revised deductible ruling, where the standard deductible will be linked to the value of the vehicle. It has also proposed an increment in the standard deductible for second or subsequent claims in a bid to discourage unsafe driving.
7. Depreciation regulation based on the age of the vehicle
The IRDAI proposes age-based depreciation for partial losses. Currently, a 50% depreciation is applied to certain parts of the vehicle (such as rubber and plastic parts) regardless of the age of the vehicle. The insurer would also exercise its own discretion to settle the claim amount.
But now, a standard grid has been proposed for all parts after taking the age of the vehicle into consideration. This eliminates any subjectivity on the part of the insurer and ambiguity on the part of the insured and reduces the probability of any malpractices.
Related: Types of motor insurance policies you should know about
8. Insurance for co-passengers
The IRDAI proposes that all the co-passengers in an insured vehicle shall be eligible for a cover of Rs 25,000 to meet medical expenses in case of any bodily injuries and harm arising due to an unfortunate event such as an accident.
9. Named driver policy
The IRDAI has proposed a ‘named driver’ policy, where the policy doesn’t provide coverage to all the individuals residing in the insured’s household. Specific drivers will be listed by name, which should result in a reduction in the premium amount due to the reduced risk occasioned by only specific qualified drivers using the vehicle.
10. Separate third-party insurance category for EVs
To encourage the sale of ‘greener’ electric vehicles (EVs), third-party motor insurance premium for electric cars will be eligible for a discount of 15% when compared to general private cars of similar categories.
Last words
The IRDAI is continually taking steps to make the purchase of motor insurance simpler and more straightforward. One can now buy motor insurance online by filling some details and uploading a few documents. The IRDAI is endeavouring to remove subjectivity and ambiguity while reducing the probability of fraudulent claims and malpractices. This will benefit the insurer, who is expected to pass on this benefit to the insured in the form of reduced premiums and useful add-ons. Take a look at these 6 Motor Insurance terms you must know before you claim your motor insurance.
