In 2018, the Insurance Regulatory and Development Authority of India had made 2 major changes that affected the motor insurance sector and its customers. According to the changes, motor insurance policyholders should have Compulsory Personal Accident Cover for the first year of the policy and the tenure of the third-party insurance cover had also been increased. Here, we discuss how these changes can impact your car insurance premium.
How does increased sum insured of Compulsory Personal Accident (CPA) Cover affect your premium?
From 1 September 2018 onwards, the sum insured amount had been increased to Rs.15 lakh under the compulsory personal accident cover. Previously, the sum insured amount of the CPA cover for bikes and scooters was Rs.1 lakh and for four-wheel drives, it was Rs.2 lakh.
Accordingly, the premium for two-wheeler CPA cover was Rs.50 and for four-wheeler CPA cover was Rs.100. However, after the increase in sum insured amount of CPA cover in 2018, the premium had been increased to Rs.750 for all vehicles.
Changes in the rule about CPA cover in 2019
The CPA cover had become compulsory for the first year of the policy. This rule was passed with the intention to help the policyholder financially if he or she were in an accident that results in disablement or death.
However, this compulsory cover for the first year of the policy was met with unfavourable feedback because there were many insured members who already had a standalone personal accident cover. Moreover, vehicle owners with more than one vehicle found it expensive to pay premiums for CPA cover with each vehicle’s insurance policy.
Due to the unfavourable feedback, the IRDAI announced on 1 January 2019 that the personal accident cover is no longer a compulsory component of the motor insurance policy. The policyholders can choose to purchase the CPA cover with their motor insurance policy or can get a standalone policy. Thus, an individual has to have only one CPA cover for all of his or her vehicles.
In conclusion, the CPA cover is now optional, and the standalone CPA cover is valid for one year. One CPA policy covers all vehicles owned by an individual. The coverage under the CPA policy with motor insurance is only for total and partial permanent disability and death. Whereas in a regular personal accident policy, the coverage is for motor accident and the policyholder need not purchase a separate CPA cover with his or her motor insurance.
How does mandated long-term motor insurance affect your car insurance premium?
The Supreme Court passed an order on 6 July 2018 according to which all new cars should have 3-year third-party insurance cover and all new two-wheelers should have 5-year third-party insurance cover. General insurance providers now offer long-term motor insurance policies for all types of vehicles on Indian roads.
Benefits of long-term motor insurance
- Policyholders tend to miss the renewal date of their motor insurance policies every year and thus, lose coverage when needed the most. With long-term insurance, they do not have to worry about policy renewal every year.
- The insurers also benefit from long-term motor insurance as they don’t have to issue a new policy to the existing policyholder every year when he or she forgets to renew the policy and it lapses as a result.
- When a policy lapses, the policyholder does not receive insurance cover during the lapsed period. So, if he or she meets with an accident during that period, the insurance provider will not pay for the policyholder’s expenses or loss. Now, with the long-term motor insurance, the policyholder will be covered for solid 3 to 5 years without a lapse in coverage in between.
- When there is a break in policy due to failure in renewal, the policyholder stands to lose his or her no-claim bonus (NCB). NCB can be used to get discounts on car insurance premium or increase the sum insured amount at the time of renewal of existing policies. With long-term motor insurance, there will not be a break in policy for the policy term of 3 or 5 years, and subsequently, there will be no loss of NCB as a result.
What’s more, the IRDAI has issued a circular to general insurance companies about the pricing of the products and how it should be in line with the rules as set by the regulator. If the product pricing doesn’t adhere to the IRDAI rules, then the regulator will step in and direct the insurance provider on such matters.