Irdai has suggested that the sum insured for all new private cars up to three years will be the current day on-road price of the vehicle
As the current underwriting of motor insurance is dependent on the vehicle, a working group of the insurance regulator has proposed changes in the norms of own-damage policies and depreciation. It has recommended that the sum insured for all new private cars up to three years will be the current day on-road price of the vehicle insured including invoice value, road tax and registration charges and value of all accessories fitted by the manufacturer.
For brand new private cards, a new sum insured option has been recommended where Return to Invoice is a part of the basic cover. The working group on revisiting the product structure of motor own-damage of Insurance Regulatory and Development Authority of India (Irdai) has underlined the need to change the motor own-damage system into a more scientific and rational exercise, where the inter-play of various factors relating to the vehicle, driver, geographies could play an integral part of the motor insurance underwriting.
The group has recommended vehicle age-based depreciation for partial losses to remove all ambiguity in claim settlement. It has recommended adoption of telematics for motor insurance where a central repository of telematics data can be created.
For private cars older than three years, depreciation will be 40% for up to four years, 50% for up to five years and 60% up to seven years. After the seventh year, the sum insured will be arrived at a mutually agreed value between the insured and the insurer. For commercial vehicles, the sum insured will be the current day invoice value plus the cost of body building, accessories fitted by the manufacturer, which will be adjusted for depreciation at the rate of 10% per year up to a maximum of 75%. In case of total loss, theft and constructive total loss claims, the amount payable will be the sum insured.
The panel has recommended that standalone own-damage cover be allowed where long-term liability policy is mandated. The expiry of the own-damage cover should not be later than the expiry of the liability policy.
Insurers can introduce pay as you drive and pay-how-you-drive covers based on data gathered. The panel has also recommended Named Driver policy as an option for private car and two-wheeler policies, where the details of the driver may be incorporated in the policy schedule.
Partial loss claims
Partial loss claims will be payable subject to depreciation as per the new scale. Also, proportionate premium for reinstatement of sum insured from the date of loss till expiry will be deducted from all partial loss claims. The panel has also recommended that in all cases of total loss and theft claims, the registration certificate of the vehicle will have to be cancelled and claim will be settled only after the insured surrenders the cancelled registration certificate.
In fact, in August this year the regulator had asked insurance companies to ensure cancellation of the Certificate of Registration (RC) of the vehicle in case of total loss claim settlement in order to stop misuse of documents related to that vehicle. A vehicle is certified as a total loss when the cost to repair is more than 75% the insured cost of the vehicle or Insured Declared Value (IDV). The IDV is the maximum amount that you can claim under a car insurance policy to compensate for any loss arising from theft or accident. It is calculated based on the manufacturer’s selling price of the vehicle plus the value of accessories minus the depreciation based on age of the vehicle.
Policy period, deductibles
The panel has recommended that the policy be issued for a period less than 12 months in special circumstances such as expiry of registration certificate after the prescribed age of the vehicle. Own-damage only policies to be issued for period less than one year to coincide with the expiry of the liability only policy as per rates filed and noted by the regulator. In case of standalone own-damage covers, the OD cover expiry date will not be beyond the liability cover on the same vehicle. The panel has recommended that there will be no waiver on the standard deductibles.
Arun Singh Bhadauria, head, Motor Insurance, Universal Sompo General Insurance, says Irdai is likely to notify with a new set of guidelines very soon which will take care of the fast-changing ecosystem of insurance. “From the insuring population point of view, revamping of the product shall give better and transparent coverage and remove the subjectivity. For an insurer, the underwriting shall be better and shall help in the improvement of loss ratios,” he says.