The recent proposal by the insurance regulator to allow three year policies for two-wheelers could help the general insurance industry to lower losses on their third party motor insurance portfolio, say industry experts.
For the consumers, the longer-term product will be beneficial as the IRDA has imposed a condition that restricts the insurer from raising the premium for three years. Generally, premium for one-year policies are hiked every year.
Currently, motor insurance policies are renewed annually. Motor insurance covers one’s own and third party damage to property or life. Insurers expect the longer term policies to help bring more vehicles into the overall insured pool, as according to industry estimates there is a 40 per cent of the two-wheeler owners do not renew the motor insurance policies in the second year.
Though it is mandatory for vehicles to have an insurance cover, it is estimated that nearly 75 per cent of two-wheelers and 35 per cent of four-wheelers are uninsured.
Vehicle owners have the option of choosing between a standalone (third party) and a comprehensive cover.
General insurance companies, which are bound to settle motor third party insurance claims with no cap on liability, have high loss ratios in excess of 140 per cent as the premium they can charge is fixed by the insurance regulator.
Ritesh Kumar, CEO, HDFC ERGO General Insurance, said, “We have been requesting the regulator for long-term products in the two-wheeler space for some time now. Today, a lot of effort goes into the process of annual renewals, which has a substantial amount of cost attached to it in terms of calling the customer for reminder and courier charges for dispatching the policies. So, by eliminating these inefficiencies, the resulting cost-savings can be passed on to the customers.”
According to a note by Royal Sundram General Insurance, apart from the fact that consumers will not have the hassle of renewing their third party motor insurance policy for their two-wheelers every year, it will also result in smoother claim settlement as customers will have a longer relationship with the company.