The Insurance Regulatory and Development Authority of India (IRDA), an autonomous and statutory body for promoting and regulating the insurance industry in India has withdrawn the permission for motor long-term cover offered for Motor Third Party (TP) and Own Damage (OD) cover. This is effective from August 1, 2020, for new cars and two-wheelers. The long-term bundled cover for automobiles was launched in September 2018, however, the insurance regulator had noticed some issues and concerns in the performance of these policies which led to its withdrawal. The IRDAI consist of a 10-member body including the chairman, five full-time and four part-time members appointed by the government of India.
Traditionally, the long-term packages offer mandatory TP and the optional OD cover as a bundle for three years in the case of new cars and five years in the case of new two-wheelers. Actuarial pricing was noticed as a challenge for insurers in long-term own damage cover. The distribution of long-term package (LTP) policies faced adversities due to affordability factors for a large section of vehicle owners. The possibility of forced selling due to financial interest, which is also linked to loans, has been noted highly. “In case of paucity of services, policyholders will be burdened with a long-term product with no flexibility of change,” said the IRDAI member. Earlier, in September 2019, insurers made available stand-alone annual own-damage covers including standalone OD cover for fire and theft, only if the policyholder prefers it. The covers have now been reexamined, and the performance of long-term packages being assessed.
Another setback, according to IRDA, is a lack of uniformity in ‘no claim bonus’ structure, which could lead to misperception and discontent among policyholders. The ‘no claim’ bonus concerning long-term policies that are already issued will accrue only when the policy term has been completed.
Impact of this effort
The decision of the regulator will impact motor insurance in several ways. First and foremost, the gross premium being underwritten will come down for obvious reasons. There are a large number of two-wheelers and cars on roads without insurance, and without long-term cover at the time of purchase of automobiles, renewals are expected to be affected as well.
