Your motor insurance policy – particularly the own damage component – could soon look very different. The Insurance Regulatory and Development Authority of India (Irdai) has released an exposure draft to revisit the current motor own damage product structure.
Several recommendations of the working group, comprising industry executives, to reexamine the product have been accepted. Here are six key changes you need to be aware of:
- Customisable premiums
The most-discussed recommendation, factoring in telematics to compute premiums, has been incorporated in the proposal. “A central repository of telematics data can be created where data from various sources flows to create a common pool. The Insurance Information Bureau of India (IIBI), which acts as data repository for insurance companies, can manage the data and its protection,” the working group recommended.
“Pay as you drive and pay how you drive covers could be offered based on data gathered. Insurers can consider developing products that factor in kilometres and driving behaviour,” says Adarsh Agarwal, Appointed Actuary, Digit General Insurance Ltd. This could mean those exhibiting good driving behaviour— as captured by telematics devices or mobile apps —will be rewarded by way of lower premiums. Conversely, rash drivers will have to shell out more.
- Friendly depreciation rules
Vehicle age-based depreciation will be introduced for partial loss claims. “Depreciation calculation for various parts and material—glass, fibre, plastic— confuse lay users. The new proposals will make the rules easier to understand,” says Sajja Praveen Chowdary, Business Head, Motor Insurance, Policybazaar. com. A standard grid has been proposed for depreciation on all parts. “This will remove all ambiguity and subjectivity in claim settlement,” says Saroj Sathpathy, ED-Reinsurance and Weather, Salasar Services (Insurance Brokers).
New sum insured computation
The Irdai has outlined new sum insured/insured declared value (IDV) calculation rules for private cars and two-wheelers.
In case of older private cars, the sum insured will now represent the manufacturer’s current listed price, minus adjusted age-wise depreciation under one of the options suggested by the working group. Under another option, for new cars, for the initial three years, the sum insured will cover current day on-road price of the vehicle including invoice value. It will also have to factor in road tax and registration charges as well as value of accessories. You need not buy the return to invoice add-on, it will be built into the base policy.
“At present, if you were to buy a car for Rs 10 lakh, and have paid an additional Rs 1.5 lakh towards road taxes and registration, your IDV will be limited to Rs 10 lakh. Under the proposed regime, the sum insured will be Rs 11.5 lakh in the first three years,” says Chowdary. After three years, the sum insured will take into account the new depreciation table. The depreciation will range from 40% after the third year to to 60% up to the seventh year. Beyond the seventh year, the sum insured shall be arrived at a mutually agreed value between the insured and the insurer.
Calculation of depreciation on parts to be standardised
| Age of the Vehcile | Depreciation on all parts (including Glass) (%) |
| Up to one year | 10 |
| 1-2 yrs | 20 |
| 2-3 yrs | 30 |
| 3-4 yrs | 40 |
| 4-5 yrs | 50 |
| 5-6 yrs | 55 |
| 6-7 yrs | 60 |
| Over 7 yrs | 65 |
Calculate the sum insured for your car
Source: Policybazaar.com. Note: Total invoice value assumed to be Rs 11.5 lakh (ex-showroom price Rs 10 lakh, registration charges and taxes Rs 1.5 lakh); sixth renewal onwards, the IDV/SI will depend on insurer. *Current = Depreciation on ex-showroom price. **Option-A (proposed) = Depreciation on ex-showroom price. #Option B (proposed) = Depreciation on total invoice value
- Better flood damage cover
A base motor policy today does not cover damage to engine due to water ingress. Policyholders have to buy a separate addon. “If draft norms are finalised in their current form, it will be covered under the base policy. Damage due to oil leakage, however, will continue to be covered under engine protect,” says Chowdary.
- No claim bonus slabs
Irdai has proposed a standard grid for no claim bonus. “Right now, each insurance company has its own NCB slabs for long-term policies. This can become a task when a customer wants to move from one insurer to another. A standardised NCB grid will help in resolving this issue,” says Agarwal. NCB is linked to the policyholder. The insured can transfer the NCB to the new vehicle he purchases. If the draft norms are implemented, NCB can be claimed on the next vehicle if the vehicle is of the same class as the one on which the NCB was earned.
- Standardised deductibles
Current compulsory deductibles – the amount that the policyholder has to bear before the insured processes the claim – will be renamed standard deductibles, and a set of revised deductibles has been proposed. For example, in case of claims, including total loss, 1% of sum insured or Rs 500, whichever is higher, will have to be borne by the two-wheeler policyholder. In case of other vehicles, the deductible will be 1% of sum insured or Rs 2,500. The deductible cannot exceed Rs 35,000.
- Rules for total loss
In cases of total loss and theft claims, the insured will have to get the registration certificate of the vehicle cancelled. The claim will be settled only after the insured surrenders the cancelled RC.
