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Non Life Insurance - Longer-term motor policies could be cheaper
13-Feb-2015
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Three-year policies will be introduced only for two-wheelers now; it might be extended to cars later on Motor insurance policyholders are likely to get three-year term comprehensive insurance products soon. With the Insurance Regulatory and Development Authority of India (Irdai) allowing insurers to come out with these products for two wheelers, a number of companies have already starting filing for this product. Till now, policyholders had to renew the policy every year. Comprehensive motor policies include motor third party (TP) and motor own damage (OD) policies.

After two-wheelers, long-term motor products for private cars might also be allowed by the end of this year with similar conditions. The good news is that the new products might turn out to be cheaper. The product would be priced at least 2.5 times higher than regular premiums for one-year products on an average. This is accounting for claims in that segment, historical data and other losses, said the head of claims in a private general insurance company.

New India Assurance, Indias largest general insurer, has already got the regulators nod for a comprehensive two-wheeler policy with a term of three years. This will be launched after a few weeks. Here too, the pricing is expected to be twice or above that of the one-year product. While the OD segment covers losses to self during accidents, motor TP covers liability to a third party caused by a vehicle owner during an accident. The regulator also said the premium would not be revised upwards or downwards during the period of the policy.

While a three-year policy means no requirement for renewals every year, it also means there would be no change in premiums on a yearly basis. Hence, insurers would price the product taking into consideration the future expected claims and inflation, if any. Since three-year products premium will be paid at one go, this might work out cheaper if insurers price it at two or 2.5 times the existing one-year premium. Buying such a policy will also insulate the policyholder from any rises that the insurer might introduce on an annual basis.

However, insurers might bring in changes in the way add-on covers are tackled now. Some insurers said that given the longer-term nature of the products, add-on covers to these three-year policies would be limited in nature and they would be priced at a premium compared to one-year policies.

There could be variants as well, in terms of both plain vanilla comprehensive long-term covers with third-party and OD facilities, apart from those with a higher personal accident variable. Irdai had said the total premium charged for the TP coverage would be three times the annual TP premium for two-wheelers, as decided by the regulator. Motor TP premium is regulated by Irdai and the regulator brings out revised rates for these policies every year, based on the claims experience. TP motor insurance is mandatory in India.

Source : Business Standard back