VANTAGE POINT

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IRDA’s revised motor insurance premium rates from April 1: What it would mean for you?

Mar 13, 2018

The Insurance regulator Insurance Regulatory and Development Authority of India (IRDAI) has proposed to reduce third party premiums for FY19 in certain segments starting April 1. This reduction in the premium rates will encourage the vehicle owners to get the mandatory Third-Party Motor Insurance for their cars and bikes.

It will also provide insurers with an opportunity to come up with cheaper comprehensive insurance policies that provide financial assistance in case of an eventuality to the owner’s vehicle.



Third Party Insurance Rates for Two-Wheelers

IRDA’s new third-party premium rate is good news for riders who are riding two-wheelers with having less than 75 cc engine. The proposal made for the current cost of third-party premium has been reduced from Rs 569 to Rs 427. Under this scenarios, the consumers will now save Rs 142 this year. There is also a relief for other two-wheelers exceeding 75cc but not exceeding 150cc, the rates have not been proposed to change this year, it will still remain at Rs 569 only.

However, if you are riding a Bullet 500 or a Bajaj Dominar or any other bike of above 350cc, or any other two-wheeler exceeding 150cc but not exceeding 350cc, you have to pay a higher premium this year. The premium rates for this segment may increase to Rs 2323 for bike above 350cc and Rs 985 for two-wheeler exceeding 150cc but not exceeding 350cc which, as compared to last FY 18 stood at Rs 1019 and Rs 887 respectively. "Third party rates have gone up by roughly 20-40 percent in the past few years. This year’s draft regulation has proposed a change of 126 percent for 350cc and above segment, 10 percent for 150cc to 349cc while there would be a slight decrease or no change in other segments,” said Tarun Mathur- Director, Policybazaar.com.



Third Party Insurance Rates for Small Cars

The proposed premium rates for small cars not exceeding 1000cc, falling between 1000cc to 1500cc and exceeding 1500cc has been revised to Rs 1850, Rs 2863 and Rs 7890 respectively, which have been kept lower for small cars not exceeding 1000cc only. However, other rates remain the same this year as for last year’s rates. The premium rates for last FY 18 stood at Rs 2055, Rs 2863, Rs 7890 respectively.

“This is a good move by IRDAI as for the owners of small cars, it will be a slight relief in their pockets. But simultaneous proposal on the increase in premium amount for bikes with heavy engine capacity will definitely upset the buyers. Lowering the premium amount rate should motivate a car buyer and it will also raise the awareness about the importance of insurance,” said Naval Goel CEO & founder of PolicyX.com

Devendra Rane, Founder & CTO - Coverfox.com said that till now the vehicle owners were already reeling under the constant increase of Third-Party Insurance rates year-on-year. Also, with the implementation of GST, the tax rates were increased from 15% to 18%. This increase of 3% contributed towards a higher total premium payable by the consumers.

“The year-on-year increase in the third party motor insurance premium rates clubbed with the increased GST rates have been putting off vehicles owners, especially in tier 2 and 3 cities and other rural areas from covering their vehicles with the mandatory Third Party Insurance,” he added further.



Third Party Insurance Rates for Taxis

If you own a commercial vehicle, the proposed rates for taxis not exceeding 1000c, falling between 1000cc to 1500cc and exceeding 1500cc stands at Rs 5437, Rs 7147 and Rs 9472 respectively, which have been kept at a lower rate this year compared to last year’s rates. The premiums for last FY 18 stood at Rs 6396, Rs 8408, Rs 11144 respectively.

There is a significant decrease in premium for taxis and low-segment cars and bikes which is a welcome relief for a significant individual-customer segment. IRDAI revises the rates every year based on claim experience in the past and we hope the lower rates are in line with the lower claim risk for these segments.

Biresh Giri, Appointed Actuary, Acko said that for most other segments the premium has been kept flat this year after increasing every year for the past 4-5 years. This will also come as a good news for the customers. For some small segments such as high-end bikes and some segments of goods carrying vehicles the premium is proposed to be increased which might be because of higher claims for these segments.

“The IRDAI’s role has been commendable in slowly and steadily increasing the Motor Third-Party premium rates over the past couple of years where it has now reached a level which is acceptable to customers and more sustainable for insurers,” he said.

However, these are only proposed rates for comments from the industry and the final roll-out is expected by the end of March.



Important Terms You Should Know Before Buying a Car Insurance Policy

Mar 13, 2018

A car insurance policy, when carefully purchased, can provide you comprehensive coverage against accidental damages, hospitalisation expenses, and natural and man-made calamities. Given how useful these policies can be in protecting your dream car, it is essential that you first familiarise yourself with certain important terms before purchasing a car insurance policy, in order to fully understand what you are signing up for.



1. Third-Party Liability Cover: As the policyholder, you are the first party. The insurer, who will settle the claim, is the second party. The third party is an individual who might be involved in an accident, and as a result suffers from accidental injuries or damages to his/her property or assets. Thus, motor insurance policy providers offer third-party liability-only covers, which provide coverage against legal liabilities of the third-party’s hospitalisation expenses and property damage. As a vehicle owner, it is necessary for you to purchase, at the very least, a third-party liability-only policy for your car, as per the Motor Vehicles Act, 1988.



2. Comprehensive Insurance Cover: Unlike third-party liability insurance which only offers a cover against legal liability to a third-party, a comprehensive insurance policy, like the name suggests, offers a higher degree of protection to the policyholder. Most comprehensive insurance plans provide coverage against third-party liability, personal accidents, vehicular damage due to natural or man-made calamities (own-damage), and theft or loss of the vehicle. While comprehensive insurance plans are more expensive than third-party liability insurance policies, the enhanced coverage make them a worthy investment.



3. Insured Declared Value: The Insured Declared Value or IDV is the maximum amount of money that you will be eligible to receive from the insurer in case of total loss of the vehicle. Thus, IDV will be calculated based on the current market value of the vehicle, and thus depreciation is taken into account. If the IDV of your vehicle is less, you will have to pay a lower premium, and vice versa. However, the lesser the IDV, the lesser you will receive as payout in the event of a claim. Thus, when you are purchasing a car insurance policy, make sure you pay keen attention to what IDV is fixed by the insurer for your car.



4. No Claim Bonus: The no claim bonus is a discount or bonus that you receive from the insurer for not making any claims during the policy year. Thus, the no claim bonus is how insurance providers reward you for your safe driving. This bonus that you receive can be applied to your own damage premium and can help reduce your premium payable. Most insurers also allow you to accumulate your no-claim bonus up to 50%, thus giving you a significant discount on your premium payable.



5. Deductibles: A deductible is that portion of the claim amount that will have to borne by the policyholder. Deductibles can be of two types – voluntary or compulsory. In the case of compulsory deductibles, the deductible percentage will be fixed by the insurer, and the policyholder will have to mandatorily pay that percentage of the claim. In the case of voluntary deductibles, the policy buyer will have to choose the deductible percentage. Opting for a deductible can reduce your payable premium. However, you should only opt for it if you have the capacity to pay the resulting claim amount.



6. Cashless Garages: Like how you can avail cashless treatments at network hospitals when you have a health insurance policy, you can also get your vehicle serviced or repaired at a cashless garage when you purchase a motor insurance policy. However, you can’t avail this benefit at all garages. Only garages that have a tie-up with your insurance provider will provide you this option. Thus, make sure to carefully consider how many garages fall within your insurer’s network before purchasing a car insurance plan.



7. Endorsements: Post purchasing your policy, if you need to make any changes to the policy document, this can be done by way of an endorsement. Thus, in case you already have purchased an insurance policy and then happen to make certain modifications to your car or there happens to be a change in the ownership, you will have to inform the insurer about this. The insurer will then create an endorsement and attach it your existing policy document.



8. Add-Ons: Add-ons can be compared to riders that are offered by health insurance or life insurance policy providers. Motor insurers offer a number of add-ons that you can purchase for an additional premium and link to your base policy. By way of the add-on, you will be eligible to avail a more enhanced coverage and receive more benefits in case of an untimely accident/theft/loss. Some of the popular add-ons that are offered by insurers include the Zero Depreciation Cover, Return to Invoice Cover, Personal Accident Cover for Co-Passengers, 24x7 Road Assistance Cover, Key Replacement Cover, etc. Make sure to consider your needs and opt for an add-on wisely to make the best use of your plan.



9. Personal Accident Cover: If you happen to purchase a comprehensive two-wheeler insurance or car insurance plan, you, the owner/driver of the vehicle, will be provided a personal accident cover. Thus, in case you happen to meet with an accident and incur hospitalisation expenses because of it, your insurance policy will provide a cover against these expenses, up to a certain amount that will be specified to you at the time of purchasing your insurance plan. Thus, the personal accident cover can supplement the coverage provided by your Mediclaim or health insurance plan.



A car insurance policy will provide you a much-needed cover against expenses that you might incur in the event of an accident. Thus, make sure to compare various car insurance plans that are offered by insurance providers, request for premium quotes, read through the policy brochure and list of benefits, and opt for a policy that is best suited to your requirements.



How will the merger of public sector general insurers impact the industry?

Mar 06, 2018

The government proposes to merge National Insurance, United India Insurance and Oriental India Insurance into one company. We spoke to experts about the challenges this can raise



Naresh Makhijani, partner and head, financial services, KPMG in India

The merged entity will control about one-third of the total non-life insurance market in India.... Such a merger may result in a monopoly-like situation with low focus on customer service. It also leads to concerns about ‘too big to fail’ due to the continuous operating losses reported by these entities. India is a highly under-penetrated market. Apart from penetration, the non-life insurance industry requires huge transformation in product portfolio and operating models. Currently, crop and health insurance hardly exists; there are very few micro agents and most public non-life insurers rely on individual agents for product sales; and digital penetration is low. In light of these transformation priorities, concentration of business in the hands of only a couple of public insurance companies may limit customers’ options.

This is notwithstanding that the synergies shall bring in a lot of efficiency in operations, claims management and technology platforms. This synergy shall certainly improve the combined ratio by 5-7%.



Premanshu Singh, chief executive officer, Coverfox.com

Government has announced the merger of three big public insurance companies in India, which is likely to be completed by the end of the next fiscal. Currently, these three major players hold a combined premium book of more than Rs40,000 crore and contribute around 30% to the market of non-life-insurance. This merger will definitely reduce competition and at the same time improve the sector’s overall profitability.

This is going to facilitate improvement of solvency levels, which are currently lower than the limits prescribed by the insurance regulator for these companies on an individual basis. Underwriting discipline will also be achieved and risk retention will be enhanced.

However, the biggest challenge in this mega-merger would be technology. All the insurers are currently using different technology platforms, which will have to be brought in sync.

The current technology can be used efficiently to overcome this challenge. Other smaller issues could be the terms and conditions of employment, salaries, and others in the upcoming merged entity. Ensuring a smooth renewal and claim settlement process, keeping in mind the huge database of customers of the merged entity will also pose a challenge. They will have to strive for a complete cultural convergence.

The easiest solution would be to maintain status quo for a few years after the merged entity comes into existence.



Dinesh Chandra Khansili, ‎executive director, Institute of Actuaries of India

Though public sector general insurers are governed by Irdai rules and most of the products are of shorter term, health insurance products can be of longer terms and there could be a long tail of claims. Products sold by insurers would be different and hence, servicing the products with varied characteristics could be a challenge for the single entity. Importantly, investment parties would be different even though Irdai investment norms apply. The infotech systems would be unique and thus a holistic integration could be a challenge. Merger of physical assets could pose a daunting challenge. The products sold by individual companies, with their terms and conditions to be honoured, could be a servicing challenge. The reinsurance system, which is visible for general insurers, could be a challenge and expectations would need to be managed in this regard. Brokers play a big role in general insurance as do third-party administrators. This too could pose a challenge eventually. The optimum use of resources, processes, and investments would actually benefit customers. The terms and conditions of a policy would be honoured and hence, existing customers would not be adversely impacted. Rather, it is expected that better efficiency in claim settlement would be achieved for longer-term products, though limited investment efficiency may be had.



Rajiv Kumar, MD and CEO, Universal Sompo General Insurance

Merger of the three public sector general insurance companies in India should be seen as strengthening the reach of non-life insurance products in an underinsured market.

Considering the competition between the three is cut-throat, the amalgamation will shift the attitude and efforts on to one singular objective, which would be to bring under its fold maximum number of uninsured people and assets. The merger is beneficial from the government’s point of view as it would reduce competition among the public sector general insurers and going forward they will be regarded as a single entity.

But subsequently, this will also create a monopolistic situation and will increase their bargaining power (for co-insurance, reinsurance) and private insurers may have to take account of this.

The merger will also lead to a challenge of addressing the excess workforce in the public sector general insurance companies.

However, things will be clearer once the road map for this merger is made public, which is likely to happen soon.

The competition will now intensify among all insurers and general insurance companies will have to turn their focus to addressing the insurance needs and servicing the uninsured markets in rural India. Given all the positive aspects of the merger, the actual benefits will only be achieved based on the agility and efficiency of implementation for the same.



HC: Genetic disorders need cover’

Feb 28, 2018

In a significant judgment, the Delhi High Court on Monday termed “unconstitutional” discrimination in health insurance policies of individuals with genetic disorders.

Justice Prathiba M. Singh said a person suffering from a genetic disorder needed medical insurance as much as others. Genetic disorders have been the source of debate in the health insurance sector.

Most policies have exclusionary clauses that deny clients’ claims if they suffer from such disorders. The verdict could open up a large number of ailments as claimable under medical insurance.

“The exclusionary clause of ‘genetic disorders,’ in the insurance policy, is too broad, ambiguous and discriminatory — hence violative of Article 14 of the Constitution,” Justice Singh said. The court directed the Insurance Regulatory Development Authority of India to re-look at the exclusionary clauses in insurance contracts and ensure that insurance companies do not reject claims on the basis of exclusions relating to genetic disorders.

Justice Singh highlighted that there are different types of genetic disorders and even common diseases like diabetes and cardiac diseases could be included in the broad definition.

“In effect, it would mean that large swathes of population would be excluded from availing health insurance which could have a negative impact on the health of a country,” she remarked.

The High Court’s verdict came on a petition filed by United India Insurance Company Limited challenging an order passed by a trial court here directing it to honour the medical claim of a person who was suffering from genetic disorder.

The client was suffering from hypertrophic obstructive cardiomyopathy (HOCM).

The court said HOCM is not necessarily genetic in nature and the treatment for the same was primarily to prevent “sudden death”. Unless there is testing, it cannot be conclusively held to be genetic in all cases, the judge said.

In its order, the court noted that in the insurance policy issued to the man, no genetic testing was undertaken before hand.

“Unless and until there is a proper genetic test in accordance with a strict regulatory mechanism, and the cause of the disorder is attributable solely to a genetic condition, the classification is too broad,” the judge said.

The court remarked that insurance companies are free to structure their contracts based on reasonable and intelligible factors which should not be arbitrary and in any case cannot be ‘exclusionary’.



Insurers may ink reinsurance treaties for FY19 based on existing guidelines

Feb 26, 2018

Insurance companies are likely to sign reinsurance treaties for the coming fiscal based on the existing guidelines, as the draft policy on reinsurance put out by IRDAI may take some time to shape up.

The insurance regulator had constituted an expert committee on reinsurance in May 2017, based on which it had proposed the draft regulations. It had invited comments and suggestions on the draft.

According to a senior official at a state-owned general insurance company, there have been a series of discussions (on the draft) and the revised version is yet to take shape.

Insurance companies are required to commence their annual reinsurance programme at the beginning of every financial year (starting April 1). The insurers are also required to submit their Board-approved Reinsurance Programme along with retention policy for each forthcoming fiscal to IRDA atleast 45 days before the commencement of the financial year.

According to Sasi Kumar Adidamu, Chief Technical Officer, Bajaj Allianz General Insurance, the reinsurance guidelines, which are currently in the draft form will review the stakeholders’ feedbacks and suggestions and follow a certain process before getting fructified into final regulations.

“In India reinsurance treaties (for a given year) are renewed with effect from April 1. In case, the proposed reinsurance draft guidelines are not effective in time, the industry will have to follow the existing reinsurance regulations, which are enforced currently,” Adidamu told BusinessLine.

The draft guidelines have prescribed a specific order of preference for placement of reinsurance business in India, wherein GIC Re is likely to retain first preference followed by foreign reinsurance branches (FRB) in India and lastly the cross-border insurers. They also suggest that the risk can be placed with the Indian reinsurer and FRB without cession limits.



Certain sore points

It is to be noted that a certain section of the industry has criticised the draft and suggested that it would be against the interest of the ultimate policy holder, the country’s insurance market, and would pose a ‘huge systemic risk for the Indian market as a whole’.

According to Insurance Brokers Association of India, prescribing a specific order of preference for placement of reinsurance business in India would lead to extreme form of anti-competition.

“Individual and corporate policyholders’ cost, coverage, service will get severely compromised and innovation in wordings, products severely constrained,” the association observed.

However, industry experts point out that there is not ‘much difference’ in the draft reinsurance guidelines proposed and the one existing at present from the ‘operational point of view.’

“Reinsurance guidelines should balance between insurers’ obtaining competitive pricing, getting adequate capacity and protecting policyholders,” R Chandrasekaran, Secretary General, General Insurance Council, said.



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