2-wheeler insurance: 3-year third-party cover a win-win for consumer, insurer

Written by fe Bureau | Updated: Aug 19 2014, 16:28pm hrs
The Insurance Regulatory and Development Authority (Irda) has introduced a three-year term for third-party motor insurance of two-wheelers. This will enable owners to insure their two-wheelers for three years and save them the hassle of renewing the cover every year. The regulator has also encouraged non-life insurers to come up with such long-term motor policies that cover even own damage.

According to an Irda circular, the total premium charged for a three-year third-party insurance will be three times the annual third-party premium for every two-wheeler as prescribed by the regulator from time to time. The premium will not be revised during the period of the policy in any circumstances and will have to be paid in one instalment, subject to compliance of Section 64 VB of the Insurance Act, 1938.

Also, insurers will not be able to cancel the standalone third-party cover in any circumstances, except in case of total loss. In the latter case, Irda has mandated that the premiums for the full unexpired years will have to be refunded to the customer. The insurers cannot change the terms and conditions after the policy is underwritten.

Insurers who want to offer the three-year cover will have to submit a letter of intent to Irda and will be treated as submission under file-and-use guidelines of the regulator. The authority is also conscious about the fact that there is a need of long-term comprehensive (own damage as well as third-party) cover also. Insurers are encouraged to file three-year term comprehensive policy also for two-wheelers as per file-and-use guidelines, says the Irda note.

Motor law in India makes third-party insurance cover mandatory. It covers the liability of a third party in case of an accident. Insurers say the three-year tenure will reduce cost of issuing policies, administering them and follow-ups for renewals. This could also lead to lower premiums as insurers could pass on the savings to customers. For non-life insurers, two-wheeler insurance is not a loss-making segment because of its low-ticket size. In April this year, the regulator increased the third-party cover for two-wheelers and even for cars and commercial vehicles. In fact, Irda has been raising the rates of third-party cover for the past three years for all category of vehicles as the overall portfolio is still loss-making for non-life insurers.

Any vehicle that plies on the road needs a third-party cover under the Motor Vehicles Act. Insurers need to ensure that the cover is available at their underwriting offices. To arrive at the new third-party motor premium in April this year, the regulator had used data available with the Insurance Information Bureau for the experience period of the underwriting years 2007-08 to 2012-13 for number of policies, number of claims reported and amount of claims paid up to March 31, 2013.

Third-party liability is decided and awarded by the judiciary taking into account the age of deceased, earning capacity, wages, etc, which keep rising due to inflation and other factors. Based on these parameters, the regulator had put in place a formula last year to calculate the pricing annually. In April 2012, it had placed the third-party under the declined risk insurance pool, which improved the claims management and ensured more equitable pooling of losses among insurers.