New SC mandate on auto-insurance: How will it benefit customers

The new move by the supreme court has been done in order to reduce the number of vehicles plying without insurance and also to make sure that the accident victims receive the compensation they deserve.

Financial Express/ auto insurance
Three year third party insurance has been made mandatory for cars now

As per a recent Supreme Court order, every new car should have a three-year third party insurance cover and every new two-wheeler sold should have a five-year third party liability insurance. As of now a significant percentage of cars and two-wheelers are not insured for the mandatory third-party insurance because of which many a time the common man who meets with a road accident involving such vehicles do not get adequate compensation.

“The move has been done in order to reduce the number of vehicles plying without insurance and also to make sure that the accident victims receive the compensation they deserve,” says Tarun Mathur, Chief Business Officer, General Insurance,

Currently, long-term policies are available only for two-wheelers and that too for two and three years only. Hence, each insurance company will have to come out with a product after attaining an approval from the Insurance Regulatory and Development Authority of India.

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“This is a welcome decision from the perspective of a policyholder in terms of convenience of purchase wherein the customers need not worry about renewals. Moreover, this will also help in the penetration of motor insurance in our country, as this would help reduce the number of uninsured vehicles on road, thereby ensuring fair compensation for the dependents of victims of road accidents.” says, Anurag Rastogi, Member of Executive Management, HDFC ERGO General Insurance.

Now, customers can be saved from the hassles of getting the third party policy renewed each year. They will be required to pay the third-party cost on the basis of the current year which will hedge the risk of paying higher third party premiums in subsequent years.

This ordinance, which is applicable from September 1st, offers a possibility to retain some No claim bonus (NCB) at a renewal of the long-term policy, even in case of a claim. Overall, the component of the price of long-term policies is lesser when compared with individual year price on renewal.

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Talking about the pricing of the policy, Puneet Sahni, Head of product development, SBI General, says, “The premium of 3-year two-wheeler is roughly 2.2 to 2.5 times the annual premium on own damage piece. On the third party, the pricing is fixed by the Regulator and 3x is being charged for 3-year contracts. The pricing for 5 years shall be fixed basis the savings in administrative cost and should be passed on to the customers accordingly. A three-year policy for two-wheelers was allowed by IRDA three years ago. More than 90% of SBI General customers have bought a 3-year policy where a two-year option is also available.”

Moreover, right now the only option for four-wheelers is an annual policy. The multi-year third-party policy in car insurance allowed by the regulator should be derived based on the savings in the administrative expenses and the benefit of the same shall be passed on to the customer in the form of lower price.

The decision of the SC aims at benefiting the customers. But, this quick change brings difficulty before the industry in terms of pricing and approval from the regulator.

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“The challenge for the insurance industry to implement the order from 1st September is the readiness of the product and pricing to be approved by the regulator and time required for making changes in the IT systems of the companies,” says K.G Krishnamoorthy Rao, MD and CEO of Future Generali India Insurance.

Premium rates for 1,2 and 3-year policies for Honda CB Shine (125 CC), registered in 2017, with a 20% NCB (No-claim bonus) discount across insurers.

Insurance Company 1st Year Premium (annually) 2nd Year Premium (annually) 3rd Year Premium (annually)
Bharti AXA 940 2386 3363
Liberty General 1013 1956 2852
Iffco Tokio 1096 2166 3229
Bajaj Allianz 1103 2186 3191
HDFC Ergo 1196 2253 3256


Please note that these premiums are excluding 18% GST.

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