IRDAI has decided to withdraw from August 1, 2020 the Long-Term Package Cover offering both Motor Third Party and Own Damage Insurances for 3 years on new cars and for 5 years on new two-wheelers.
The Insurance Regulatory and Development Authority of India has decided to withdraw from August 1, 2020 the Long-Term Package Cover offering both Motor Third Party (TP) Insurance and Own Damage (OD) Insurance for three years on new cars and for five years on new two-wheelers.
The long-term package was introduced on September 1, 2018 with the option of either having both TP and OD insurance covers for three years or five years, as the case may be, or having the TP component for long term and OD part for one year.
“The insurance regulator has decided to withdraw the long term cover for Motor Own Damage only – the long term cover for Motor Third Party Liability remains as earlier at 3 years for new cars and 5 years for new two-wheelers,” said Roopam Asthana, CEO & Whole Time Director, Liberty General Insurance Ltd.
While a long-term policy may save a vehicle owner from the hassle of renewing the policy every year, what would be the reasons behind withdrawing it?
“Withdrawing long-term cover is a very customer friendly move, as it has become costly for customers. Portability is a possibility subject to premium quoted by the new insurance company for continuing the cover. This will also prevent misuse, which was happening in certain segments,” said Eswaranatarajan, COO, KGI.
According to Asthana some of the possible impacts of this change in regulation for insurance buyers are as follows:
- It brings down the cost of first-year insurance for new car/two-wheeler buyers and brings down the upfront cost of vehicle ownership for buyers which is a big positive for consumers.
- It ensures that the insurance buyer is not held to ransom by an insurance company as the buyer now has the ability to switch the Motor Own Damage cover to another insurer on first-year renewal.
- It increases uncertainty of second-year premium for a customer as now the insurance company has the ability to price the 2nd year premium on its underwriting terms as against a fixed premium paid earlier for 3 consecutive years.
- It increases competition amongst insurance companies for 2nd-year premium and this could be positive for the insurance buyer.
Talking on availability of no-claim bonus (NCB) due on long-term policy after withdrawal of it, Asthana further said, “Yes, the customer has an option to renew his/her Long Term Policy with any other Insurer. NCB will be provided as per the India Motor Tariff and will be dependent upon a yearly claim made by Insured within the Long Term Policy.”
However, while applying for portability, it has to be seen if a policyholder would face any problem in getting short-term OD cover from another insurer on a vehicle where the total NCB on a long-term policy exceeds, equals or comes close to the renewal OD premium.