Huge damage to car in accident? Revealed, how insurers pay for Total Loss

By: | Updated: January 9, 2019 12:51 PM

On receipt of a few complaints relating to general insurers settling lesser amounts than the IDV in case of total loss of motor vehicles, Irdai has raised its concern.

total loss, car insurance, total loss claim, theft claim, irdai, IDV, policyholders At times, especially while renewing the policy, a car owner is tempted to increase the IDV even if there is a slight increase in the premium.

When it comes to the settlement of claims, the car insurance policyholders are often at the receiving end. This is more pronounced at the time of making a claim in case of motor vehicle ‘total loss’ (TL) or a theft claim. However, going by the recent Orders passed by the Insurance Regulatory and Development Authority of India (Irdai) against most of the general insurance companies, the policyholders can heave a sigh of relief and be forewarned not to let the insurers take them for a ride.

The rule in case of Total Loss

According to the General Regulation 8 of India Motor Tariff, 2002, while settling motor claims, “For the purpose of Total Loss (TL) / Constructive Total Loss (CTL) claim settlement, this IDV will not change during the currency of the policy period in question.” The rule further states that, “The IDV shall be treated as the ‘Market Value’ throughout the policy period without any further depreciation for the purpose of TL / CTL claims.”

In case of a total loss of a vehicle, the overall cost of repair and retrieval of the vehicle exceeds 75 per cent of the Insured Declared Value (IDV) of the vehicle. In case of a constructive total loss of the vehicle, the total cost of retrieval of the vehicle exceeds its current market value.

Going by the Irdai’s Jan 3, 2019 Order and a few other such Orders against other insurers in the past, it appears that it has been an industry-wise concern. And, that is why IRDAI states – “On receipt of a few complaints relating to General Insurers settling lesser amounts than the IDV in case of motor vehicle total loss / theft claims, the Authority had called for motor claims data from General Insurers.”

Submissions made by the Insurer

According to the insurers, reduction of IDV happens in some cases due to non-standard settlement of the claim owing to delay in claim intimation and delay in filing FIR and non-submission of keys. Most insurers have documented guidelines for settlement of claims on non-standard basis with a reduction limit up to 25 per cent or minor deductions wherein there is deficiency or breach of policy conditions, which are determined according to the merits of the claim and the particular deficiency or shortfall in requirements.

Irdai’s take

Irdai doesn’t seem to have fully satisfied with the submissions that are made by the insurers. Primarily, Irdai seems to have the opinion that rules have been “violated to the extent of having been non-transparent regarding deductions made from the claims.” Here are Irdai’s observations – “This, however, does not offer any ground for the Insurer to deduct amounts from the claims with the claimants and arriving at ‘negotiated amounts’. There is no transparency about what can constitute a non-standard claim and the amounts deducted from the IDV in various cases seem to have been made arbitrarily.” In the interest of policyholders, the regulator has often penalised the insurers in order to make them comply with the rules in letter and spirit and not let the policyholder suffer.

Policyholder watchouts

At times, especially while renewing the policy, a car owner is tempted to increase the IDV even if there is a slight increase in the premium. This may actually go against the policyholder at the time of a claim. As can be seen in the submissions made by insurers to Irdai, the insurers accept that the settlement amount was reduced due to gross overvaluation of IDV at the time of underwriting.

Finally, it is important to fully understand the implication of signing the consent form and then act.

Most insurers will try to negotiate and make an attempt to settle the claim after taking the consent in writing by a separate declaration or full and final discharge voucher. Now that you know the rules, let the insurer treat you fairly.

(By Sunil Dhawan)

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