Long term motor insurance package cover set to return
Hyderabad, December 8, 2022
More than two years after it they were withdrawn, IRDAI issues exposure draft to revive them
Long term motor insurance packages comprising mandatory Third Party and optional Own Damage covers are likely to make a comeback with insurance regulator IRDAI issuing an exposure draft seeking comments.
“In order to allow policyholders a wider choice, it is proposed to permit all general insurers to offer long-term motor insurance policies,” the regulator said in the draft document specifying contours of the products.
The long term cover would be for 3-year for private cars and 5-year for two wheelers. In both the cases, the cover would be co-terminus with the motor third party liability component, IRDAI said. At present, new cars and two-wheelers are issued the TP cover for 3 and 5 years respectively, while OD component is available for one year.
According to the exposure draft, the long-term OD cover in case of renewal of existing OD cover should be co-terminus with the TP cover.
The long term cover will be for 3-year in the case of erstwhile Indian Motor Tariff Class D (Miscellaneous and Special Types of Vehicles) and co-terminus with the TP cover. Motor add-ons will be co-terminus with the OD cover in respect of private car, two-wheelers and Class D vehicles, the regulator said.
The Insurance Regulatory and Development Authority of India had introduced long-term package cover previously in the wake of Supreme Court directions, to the insurers concerned, to offer only three-year TP polices for new cars and for five years in the case of new two wheelers from September 1, 2018.
Subsequently, in July 2019, IRDAI issued a circular clarifying that the long-term motor insurance products applied only to new private cars and new two-wheelers. They should not be offered for renewal of existing policies or for old vehicles, it had said.
Almost a year later, IRDAI said from August 1, 2020 the long term package motor insurance covers will be withdrawn. The decision follows multiple concerns related to implementation, including a “possibility of forced selling due to financial interest or being linked to loans,” the regulator said.
Distribution of such package policies had challenges due to affordability factors for a large section of owners of vehicles. In the event of deficiency in services, policyholders would be saddled with a long-term product with no flexibility to change options, a senior official of IRDAI had then said.
In the latest exposure draft, IRDAI said “pricing of long-term policies is to be made based on sound actuarial principles considering all aspects of rating, including claims experience, lower anti-selection, reduced policy administration and acquisition costs given higher renewal rates, long-term discount, expected no claim bonus level by the end of the policy period and applicable government taxes.”
The Insured Declared Value (IDV) agreed to by the policyholder, the premium and the add-ons applicable for each year should be mentioned in the policy schedule. The depreciation rate to apply on the IDV should not exceed 10% per annum during the policy period. The premium for the entire term will be collected at the time of sale of insurance. The insurer should also have a ‘Board-approved policy’ relating to operational matters.
[The Hindu]
