With what may come as a relief to OEMs and motorists, the Insurance Regulatory and Development Authority (IRDAI), the regulatory body for all insurance and re-insurance activities in India, has withdrawn long-term package (insurance policies) cover offering for own damage (OD) insurance for three years or five years for two-wheelers and passenger vehicles. This may translate to a slight revision for new vehicle prices.
The long-term policies were mandated in 2018 had been a matter of debate for the automotive industry as it added a significant cost to the prices of vehicles. In a order dated June 8, accessed by Autocar Professional, the regulatory body says that it “has reviewed the various options of long-term and annual motor insurance covers now being offered to the prospects/policyholders pertaining to Own Damage. After a careful examination of the performance of long-term package covers and the following concerns relating to its implementation since its introduction in September, 2018, the authority has decided to withdraw long-term package covers offered for three years or five years for new cars and new two-wheelers respectively with effect from August 1, 2020. Actuarial pricing has been a challenge for insurers for long term Own Damage cover. Distribution of package policies has its challenges due to affordability factors for a large section of owners of vehicles.”
“The possibility of forced selling due to financial interest/ being linked to loans is high. In case of deficiency in services, policyholders would be saddled with a long term product with no flexibility to change options. The No Claim Bonus (NCB) structure is not uniform among insurers and this could lead to confusion and dissatisfaction amongst the policyholders. Except for withdrawal of the long-term package products (and the add-ons thereon) with effect from August 2020, all other extant provisions shall continue mutatis mutandis. No Claim Bonus in respect of long-term package policies already issued will accrue only when the policy term has been completed.”