IRDAI has brought out an exposure draft on making motor insurance policies much better and simpler.
Considering the various developments in the fast-changing eco-systems as well as in technology relating to motor vehicles, the Insurance Regulatory and Development Authority of India (IRDAI) has brought out an exposure draft on making motor insurance policies much better and simpler. There are various changes suggested in the draft that will affect the consumers in a very positive way, such as defining Sum Insured – Value to be paid to the customer in case of total loss of a vehicle, Depreciation to be followed in case of claims (vehicle parts), coverage of engine damages due to water ingression and consumable items such as engine oil, nuts and bolts in case of a claim. The regulator through its latest development is not only planning to introduce advanced technology for determining the premium of the vehicles, but is also planning to revisit the product structure in respect to motor own damage segment.
Sum Insured – This will be the value that is paid to a customer in case of a claim under total loss (Theft of vehicle or damages leading for repair amount being more than 75% of Sum Insured). Referred to in the Motor Tariff as Insured Declared Value (IDV) an equivalent of Sum Insured was derived earlier by applying depreciation on the Ex-show room price of a vehicle. Assuming the ex-show room price of a vehicle is Rs 5 lakh and the on-road price including registration charges, road tax, etc., can lead up to Rs 6 lakh. So, the IDV for brand new vehicle earlier was 95% of Rs 5 lakh, meaning Rs 4.75 lakh, and would be depreciated for every year that goes by like Rs 4.25 lakh in the 2nd year, Rs 4 lakh in the 3rd year, etc.
In case of a total loss under a comprehensive policy, the customer would get the IDV value unless an add-on called “Invoice cover or Return to Invoice cover” is opted for. In cases, where the add-on has been opted for, the customer would get the value of invoice, ie. Rs 6 lakh. Under the proposed draft, the Sum Insured is expected to be the invoice value of Rs 6 lakh for the initial 3 years of a private car and would be depreciated upon invoice value of Rs 6 lakh post the 3rd year and not on the ex-show room price of Rs 5 lakh as done earlier.
Moreover, till now, the depreciation on vehicles is done only till the first 5 years. However, with the implementation of new guidelines, depreciation on vehicles will be now applicable till 7 years of the vehicle age. Earlier, there was a deprecation on different parts of the vehicle with depreciation on rubber, nylon and plastic being 50%, depreciation on fibre glass being 30% while there was no depreciation on the glass. Now, as per the new guidelines, anything and everything, will have a depreciation value. Different parts having different deprecation may be ruled out completely and all parts will have same depreciation i.e. till 1st year – 10%, till 2nd year – 20%, till 3rd year – 30%, till 4th year -40% and till 5th year -50%.
The regulatory body even initially plans to adapt telematics in the motor insurance industry as it plans to promote the concept of pay as you drive. In its latest exposure draft, IRDAI has made it clear that the Insurance Information Bureau of India (IIBI) will act as a data depository and will store and own the data. It will be interesting to see how this new initiate is introduced as it is a very new concept for the Indian market. The regulator even plans to help insurers to keep a check on fraudulent elements through Cancellation of RC for total loss cases, claim intimation within 24 hours, mandatory deductible linkage to Sum Insured, etc.
(By Sajja Praveen Chowdary, Head-Motor Insurance, Policybazaar.com)