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IRDA mulls 5-year third party insurance for vehicles; what it will mean for you

Jun 07, 2018

Do you know that more than 60% of the two-wheelers on roads are uninsured and close to 30% Cars? In case of an unfortunate accident, the uninsured vehicle owner may not be able to compensate the victim or his family, thus it is very important for every vehicle owner to have at least third party insurance.

The Supreme Court committee on road safety is of the view that insurers should give an option of 3 years & 5 years Third party Insurance for cars & two wheelers respectively. In this backdrop, IRDAI has asked insurers to file these products & offer these options to the customers.

Animesh Das, Head of Product Strategy - ACKO said that this is a welcome move as it will directly help to increase the Insurance penetration. For a vehicle owner, it reduces the hassle of renewing the policy every year. The customer can buy policy once and get a peace of mind for 3-5 years. In addition to this, customers will get the flat rate for 3-5 years Insurance and thus they will save money against the inflation. If we look at last 5 years, the Third-party Insurance premium (which is decided by IRDAI) for two-wheelers has been nearly doubled & has increased to 2.5X for cars. So, opting for long-term policy will save the customer against these premium hikes as well.

An important point here is that long-term policy for 3 years for car & 5 years for two-wheelers will be offered only for third party insurance and not for the comprehensive cover (which includes vehicle damages). Currently, maximum one-year comprehensive policy for car & three years comprehensive policy for two-wheelers can be offered by insurers.

Also, one should not compare the third party insurance with the comprehensive cover. Third Party insurance is for the damage caused by you to any third party whereas comprehensive insurance policy covers own damage and third-party insurance both.

Tarun Mathur- Chief Business Officer, General Insurance, said Third Party insurance and comprehensive insurance policy are two different categories of motor insurance because TP insurance is mandatory by law whereas buying a comprehensive policy is purely a customer' choice to give 360 protection to your vehicle and any damage to other vehicles. “The premium for own damage is charged to cover the cost of repair (basis depreciation) for your own vehicle in case of an accident, fire, theft etc.,” he said.

Given, third-party insurance has low ticket size, usually, intermediaries were promoting comprehensive cover vs third party only. Now with 3-5 years option, Intermediary may find the third party as a lucrative option to offer and thus the availability of these products will increase for consumers which will further result in higher penetration of Insurance.

Devendra Rane, Founder & CTO - said that long-term policies from the insurers will thus lock-in lower premium rates. At the same time, it removes the hassle of remembering the impending due dates for insurance renewals. This will also motivate vehicle owners to secure their vehicles with a proper insurance, thus increasing the penetration of insurance and thereby bringing the premium rates further down. “IRDAI has recently motivated the people to get their vehicles insured by reducing the third-party premium rates for cars with engine capacity less than 1000cc to Rs 1850 and for two-wheelers with an engine capacity less than 75 cc to Rs 427,” he added.


Motor Insurance: Long-term third-party cover for new private cars and two-wheelers

June 04, 2018

In order to cover more people under the mandatory third-party motor insurance cover, the insurance regulator has advised companies to design long-term cover for new private cars and two-wheelers. At present, the rates of third-party motor insurance are fixed by the regulator every year depending on the engine capacity.

Long-term covers

The Insurance Regulatory and Development Authority of India (Irdai) note underlines that third-party insurance should be five years for two-wheelers and three years for four-wheelers. Half of the vehicles plying on the roads are uninsured despite the third-party insurance being mandatory. “With a view to ensuring that these uninsured vehicles are covered against motor third-party insurance, the Supreme Court Committee on Road safety is of the view that general insurance companies should issue long term insurance covers, namely five-year policy for two-wheelers and 3-year policy for four-wheelers,” the communication from Irdai to non-life companies says.

The regulator underlines that long-term third-party insurance will reduce the hassle of renewing the policy every year, and an increase in the number of insured vehicles could bring down the rates as the risk pool becomes larger. It will also ensure that the policyholder has some stability in rates for a defined period. For insurers, too, such a move will increase the number of insured vehicles and lead to higher penetration and premium volumes. Also, an increase in critical mass could mean better experience.

Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance, says with long-term third-party cover policyholders will not have the hassle for renewing their motor insurance every year. From the industry point of view, he says risk will be high, as during the long terms the laws keep changing and the losses could also go up. “We are awaiting further clarity from IRDAI on how this is going to be priced, since the long term premium can’t be priced on the lines of the current one year rates and long term inflation rates will also need to be considered,” he says.

Rates fixed by IRDAI

For 2018-19, the insurance regulator had reduced the premium rates for motor third-party insurance. The premium for cars with engine capacity of less than 1,000 cc was reduced from Rs 2,055 to Rs 1,850. There has been no change in the existing rate for cars with engine capacity higher than 1,000 cc. Similarly, the premium on two-wheelers with less than 75 cc engine was lowered from Rs 569 to Rs 427. However, the premium on two-wheelers over 350 cc has gone up from Rs 1,019 to Rs 2,323.

Motor insurance comprises own-damage and third-party insurance. Any vehicle that plies on the road needs the mandatory third-party cover under the Motor Vehicles Act and insurers will have to ensure that the policy is available at each of their underwriting offices. To arrive at the new third-party motor premium in April ever year, Insurance Regulatory and Development Authority of India (Irdai) analyses the data on accidents given by the Insurance Information Bureau of India.

The rates are fixed by the regulator depending on the engine capacity and the vehicle owner has to pay the amount every year. No insurer can give any discount on the third-party premium fixed by the regulator. Then, there is own-damage premium which is fixed by the company depending on their underwriting losses and this is where one can negotiate the premium with the insurer.

Third-party liability is decided and awarded by the judiciary taking into account the age of deceased, earning capacity, wages, etc., which keep rising due to inflation and other factors. The Motor Vehicles (Amendment) Act has substantially increased compensation for accident victims.

Considering the mandatory nature of third-party insurance, Irdai had asked insurers to ensure that the cover is made available at their underwriting offices and through all available channels of distribution. The reported claims frequency is the highest for the goods carrying segment, followed by passenger vehicles and private cars.

Policyholders should look at a comprehensive cover which takes care of the own damage portion, especially loss or damage due to fire, explosion, accidents or while in transit by road or rail, and even burglary and theft. A comprehensive motor insurance cover comprises own-damage and third-party insurance.

What is a critical illness insurance plan?

June 04, 2018

A critical illness policy is a defined benefit health insurance plan. Defined benefit plans pay you a lump sum on an insured event. So unlike a basic health insurance plan that will pay up the costs you actually incurred due to hospitalisation, a critical illness plan will pay a lump sum amount. For this reason a critical illness policy not only helps you pay for incidental expenses, but also supplements your income in case you are unable to work because of the said illness.

There are many types of critical illness plans in the market. While some focus on a few ailments, others cover a wide range of critical illnesses. A typical critical illness policy will cover illnesses such as cancer, coronary artery bypass graft surgery, kidney failure, heart attack, major organ transplant and stroke.

You can either buy this as a stand-alone policy or as a rider with a life insurance policy.

Both life insurance as well as non-life insurance companies offer critical illness plans. Remember to read the exact definition of the illness.

You also need to remember that most critical illness plans come with a survival period of 30 days after the diagnosis of a critical illness. It’s only after the policyholder has survived this period that the claim is settled.

Delay in insurance claim is deficiency in service: Forum

May 20, 2018

Delay in processing insurance claim amounts to deficiency in service and unfair trade practice by an insurance company, the consumer disputes redressal forum, Ernakulam, observed.

The forum while hearing the case of a minor who suffered fracture while playing at a park made this observation and asked the insurance company not just to pay the insured amount but also compensate for deficiency in the service offered.

The judgement of the forum delivered last month came on a petition filed by Rajesh Balakrishnan on behalf of his minor son in Muvattupuzha in 2016. The insurance company was asked to pay Rs 20,000 to compensate the complainant for deficiency of service.

As per the petition, Rajesh along with his family visited Thanneerchal park on April 12, 2016. His son while playing on the slide boy fell down and sustained several bodily injuries. Immediately, the boy was taken toa private hospital in Tripunithura.

Doctors diagnosed a fractured elbow. The boy was hospitalised for two days and the total medical expense was around Rs 20, 000. Thereafter, Rajesh approached park officials seeking compensation. The park officials informed Rajesh that they were insured with the National Insurance Company and advised him to lodge the claim before it. Subsequently, the complainant approached the company seeking insurance claim, but to no avail. The insurance company contended before the forum that they had not received any complaint from Rajesh and hence he was not entitled for any benefits from the company.

But Rajesh produced postal receipts of the complaints he sent to the insurance company and the signed acknowledgment. He also produced evidence including the medical details to prove his claim.

The forum noted that the insurance company could not produce any evidence that they had promptly replied to the complaint filed by Rajesh on July 25, 2016. “The delay in processing the claim is not only deficiency in service but also an unfair trade practice. We are of the opinion that the first opposite party (insurance company) is also liable to compensate for the deficient service offered and for the unfair trade practice happened on their side,” noted the forum headed by president Cherian K Kuriakose.

The forum asked the company to process his claim and pay the amount in accordance with terms and conditions of the policy. Besides, it asked the company to compensate Rs 20,000 to Rajesh for deficiency in service and unfair trade practice committed by the latter and it should meet the cost of proceedings of the complainant at the forum.

“We had not received any letter claiming the insurance amount from the complainant. We got details of the claim, he sent us, from the advocate when the case up came in consumer forum. We are yet to receive the copy of the judgement,” said an official of National Insurance Company with the divisional office in Tripunithura.

Health-cum-life insurance for ryots soon

May 16, 2018

Chief Minister K. Chandrasekhar Rao has instructed the principal secretaries of Finance and Agriculture departments to hold discussions with the Life Insurance Corporation (LIC) authorities for evolving modalities for introducing the scheme, including fixing the premium.

The Chief Minister averred that the health-cum-life insurance cover for farmers announced by him is sure to show the way for the entire farming community across the country. Mr. Rao, who examined the salient features of the insurance scheme introduced by the Central Government in which farmers have to share the premium that should be paid to the insurers, opined that the State should opt for its own scheme that should be offered free of cost to farmers. Mr. Rao held a meeting with Ministers and senior officials on the proposed insurance scheme, being designed as group insurance scheme, and the processes required to be completed before officially launching it. He recalled that farmers of Telangana faced lot of distress in the united State and hence, the TRS government had taken up a spree of initiatives for alleviating their distress. The proposed that the insurance scheme is one such measure illustrating the government’s commitment to farmers’ cause.

The previous governments in the united State had never considered the farmers’ issues with a human angle. Asserting that the government is firm on addressing the farmers’ issues, he stressed the need for bringing the community out of trauma they face by putting in place variety of schemes, including the investment support scheme, insurance scheme and many such measures that are expected to follow.

The Chief Minister underlined the need for ensuring payment of ₹5 lakh as insurance amount to the families of farmers who die, whatever may be the reason. The government is committed to help farmers wholeheartedly and every farmer should get the benefit of insurance scheme irrespective of the size of the landholding, he said.

He said the government had decided to entrust the responsibility of implementing the insurance scheme to the LIC, a Government of India undertaking, owing to its large network and the trust people have in it. The scheme is yet another initiative with longevity which the future governments at any point of time should invariably continue. Budgetary allocations should be made for the payment of premium so that it can become an assured payment, Mr. Rao said.

Given the importance attached to the scheme, the officials concerned should work out with the LIC authorities about the different models, including age group wise model, and finalise the scheme after thorough discussions. The insurance papers should be prepared village and mandal-wise and adequate care should be taken regarding the entry of the name of the nominee during the preparation of the policy, the Chief Minister said. Ministers Eatala Rajender, G. Jagdish Reddy and P. Mahender Reddy, government’s chief advisor Rajiv Sharma, Chief Secretary S.K. Joshi and other senior officials attended the meeting.

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