From September 1 you will have to buy motor insurance cover for new cars and two-wheelers for at least three and five years, respectively, according to the Supreme Court ruling. The cost of the vehicle is going to be increased as now you will have to pay the lump sum premium for 3-5 years instead of yearly renewals.
It will not only cost you more premium but will also hurt no-claim bonus, as it is given at the end of every policy year. In the new policies it will be after 3 years for a car and after 5 years for a two-wheeler.
No claim bonus is the reward given by the insurer to the policyholder for not making a claim in the preceding years. Under this insurer gives a discount of 20 per cent to 50 per cent for every claim free year upto the period of 5 years.
Onkar Kothari, Compliance Officer and Company Secretary Bajaj Allianz General Insurance, says, “No Claim Bonus will come into picture only at the end of the policy term, i.e. after 3 years for a Four Wheeler and after 5 years for a two wheeler.”
Tarun Mathur, chief business officer, general insurance, Policybazaar, agrees. “One thing that will get challenged is no-claim bonus, as now it would be credited at the end of the policy term.”
The Supreme court ruling is for the Third-Party cover of the motor insurance policy. Own Damage and Third Party Insurance are two components of car insurance. Own Damage covers your own car while Third Party insurance covers damage done to the third party in case of an accident.
Given that motor insurance is generally sold as a comprehensive policy, insurers will provide a lumpsum policy for both the covers.
What will be the impact on premium? Kothari, says, ” The guidelines only specify the third party insurance premium for private cars and two-wheelers for 3 and 5 years respectively based on the capacity of vehicles. While in some categories of private cars, it has been increased by up to 11% over the three years, for a segment of two-wheelers it has actually been decreased.”
He adds, “The Circular does not specify changes in the premium for the own damage section of the package policy. The insurers are required to file it with the regulator by 15 September 2018.”
Insurance Regulatory and Development Authority of India (IRDAI) notified, on August 28, that 3 years and 5 years long-term motor policies will be effective from 1st September.
The two options have been provided by the regulator stating a) Long-term package cover offering both Motor Third Party Insurance and Own Damage insurance for three years or five years as the case may be, or b) a bundled cover with a three-year or five-year term (as applicable ) for the third party component and a one-year term for the Own Damage.
Considering, it needs pricing to be done differently the regulator has asked insurers to start selling long-term policies in line with their current pricing structure and later file such products under the File and Use Guidelines before 15th September, 2018.
The IRDAI circular states, “Insurers may price the Own Damage component of the long-term package covers suitably, in line with their current approach for pricing. Given the immediate need to offer long-term package covers, insurers may start issuing such policies effective 1st September, 2018 even while ensuring filing such products under the File and Use Guidelines before 15th September, 2018.”