Insurance Regulatory and Development Authority of India (Irdai) has asked all the general insurers to offer long-term mandatory third-party insurance cover with effect from September 1.
Following a Supreme Court order, the Insurance Regulatory and Development Authority of India (Irdai) has asked all the general insurers to offer long-term mandatory third-party insurance cover with effect from September 1.
Accordingly, the third-party insurance cover for new cars will be for three years, while the cover for new two-wheelers will be for five years. Officials in the insurance industry said that after this order they will start selling a five-year comprehensive cover for two-wheelers and three-year comprehensive cover for four-wheelers. A comprehensive cover includes third-party and own damage cover. While Irdai decides the premium rates for third-party cover, premiums for own damage cover is decided by the insurers.
The Supreme Court on July 20 stated that, “We make it clear that the third-party insurance cover for new cars should mandatorily be for a period of three years and for two-wheelers, it should mandatorily be for a period of five years. This may be taken and treated as a separate product. The decision should be implemented from lst September, 2018 on the policies sold.”
Rakesh Jain, ED & CEO of Reliance General Insurance, said: “This is a positive move towards increasing the penetration of insurance in India. A lot of policyholders otherwise forget to renew or find it difficult to retain insurance afterwards. For the own-damaged part, it is too early to comment. The premium needs to be worked out taking into consideration inflation on labour and spare parts over the future policy period. Industry needs to gather more data points and decide on the pricing approach.”
Irdai, in its circular, stated: “The premium has to be collected for the entire term (three years or five years as the case may be) at the time of sale of insurance but would be recognized on a yearly basis. Thus, the premium for the year shall only be recognised as income and the remaining premium shall be treated as ‘Premium Deposit’ or ‘Advance Premium’.”
The three-year premium rates for private cars is between Rs 5,286 and 24,305 depending on vehicle category. While long-term premium rates for a five year Motor TP for two wheeler is between Rs 1,045 and Rs 13,034 depending on vehicle category. Senior officials in the industry said that such long-term insurance policies will help insurance industry and there might be benefits for customers in premiums.