Insurers worried about lack of clarity on long-term third party motor cover
Chennai: Days ahead of the September 1 deadline, insurance companies are worried about the lack of clarity in pricing and paucity of time to implement the mandatory long-term third party motor insurance for new private vehicles.
They also apprehend an adverse impact of the long-term third party policy on own damage cover.
In July, the Supreme Court had ordered insurance companies to sell long-term third party motor insurance policies for new private vehicles from September 1. The new private cars sold in the market from that date onwards should have mandatory third party cover of three years while two-wheelers should have a cover of five years.
However, the Insurance Regulatory and Development Authority of India (Irdai) has not yet announced the pricing, commissions and other details of the cover.
“The pricing has to be determined on the basis of actuarial estimates and with past data available with Irdai, the regulator has to come out with the details. We are still waiting for the announcement from the regulator,” said R Chandrasekaran, secretary general, General Insurance Council.
According to him, the greatest challenge for insurers will be on the logistics front. With only half-a-month left, the insurers have to get the pricing details across all outlets which sell new vehicles.
However, the insurers find that determining pricing itself is a challenge before the Irdai. “Usually the regulator revises third party premiums every year based on the loss ratios in each segment. When premiums are fixed for a longer term, the pricing calculations have to be done based on projections,” said a top official of an insurance company. The pricing can either turn out to be inadequate for the insurance company or expensive for the customer.
Usually, insurance companies combine both third party and own damage cover while selling the motor cover. Paying the entire cover upfront for three years or five years will be a burden for the customers. “If the yearly premium of a car is Rs 28,000, paying Rs 84,000 upfront will be considered a burden,” he said.
In such a situation, there are high chances that customers may not buy own damage policy for all the years together. Customers usually renew the motor cover, as the third party portion is mandatory. If the third party premium is already paid for the long term, customers may not bother to renew the own damage cover.
Own damage accounts for almost 85 per cent of the motor cover and such a situation will lead to significant loss of business for insurance companies.
“There is lack of clarity about the product, pricing and commissions. We expect the deadline to be extended to address all the issues,” said the official.
