As we all know, the Insurance Regulatory and Development Authority of India (IRDAI) has increased vehicle insurance premium again, with effect from April 1, 2017.
The premium for third party insurance has been going up every year. The regulator wants to reduce the losses faced by motor insurers on account of a high claims ratio — the proportion of claim settlement to premium collected. In 2015-16, the claims ratio was 98 per cent in motor third party insurance.
But, while road accidents are on the rise and motor insurance companies shell out higher sums to victims towards compensation, the base of insured vehicles is not getting broader. About 60 per cent of the vehicles plying on Indian roads are uninsured, going by market data.
Why aren’t more people renewing their vehicle insurance? BusinessLine sounded out a few road users in order to bust myths about motor insurance.
Myth 1: Safe drivers don’t require insurance
Anirudh Rangachar, who has been driving a Honda Activa for two years, says, “I have insured my Scooty, but I haven’t claimed even once in two years. I don’t see any use for the policy, I drive safely…I will not ram my vehicle into anyone, anywhere.”
Our take: Agreed, you are a careful driver, but you can’t say the same about other drivers on the road. Someday an auto or a cab may hit your vehicle, but you can’t be going after them to get a broken bumper and headlight changed. The premium of ₹1,000/2,000 you save by not insuring your vehicle will be too little compared to what you may cough up at the workshop.
Another point to note is that insurance policies cover not just damages to your own vehicle but also the liabilities you may face from a third party after an accident.
For instance, if the driver of the other vehicle files a suit against you seeking compensation for damage to his vehicle or any injury he has suffered, and you don’t have third party insurance for your vehicle, it will be you who has to pay for the compensation awarded by the Motor Accident Claims Tribunal. Do note that in case of loss of life, the compensation the Tribunal may offer can run into a few lakhs.
So, do all types of policies cover liabilities towards third parties? The standard motor insurance policies in the market have two components — ‘Own Damage’ insurance and ‘Third Party’ insurance. These are called comprehensive motor insurance plans. There are standalone third party insurance policies too in the market. This is because third party insurance is mandatory for all vehicles, but own damage insurance is not a statutory requirement.
Own damage insurance covers damage from natural calamities (normal wear and tear will not be covered) as also loss due to theft. Third party insurance compensates for damages done to a third party (injury or death) and his vehicle.
Myth 2: Settlement is only partial
Auro Mirra Govindarajan, a young professional and a fashion designer, questions the whole process: “What use is insurance? My brother met with an accident and his bike was damaged. But when he took it to the insurance office, they asked for innumerable details and finally said only a portion of the actual repair cost of ₹20,000 will be reimbursed…Now, I’m wondering if I should renew my bike’s insurance this year…”
Karthick, a Chennai resident for long, who has driven through many small roads in the city, says, “I have claimed on my Ford ikon several times, but never have I got the full amount…”
Our take: Any motor insurance policy has ‘deductibles’ and exclusions that you should be aware of. ‘Deductibles’ will have to be paid from one’s pocket — it could be a few hundred rupees for a bike and ₹1,000/2,000 for a car (a little more for high-end cars). This is done basically to discourage policyholders from making small claims.
The ‘exclusions’ under the policy will also not be covered unless one has signed for an add-on cover.
The general exclusions in a motor insurance policy are damages to tyre and other parts due to normal wear and tear and damages to the engine (in the nature of an electrical/mechanical breakdown).
Accessories such as music player, parking camera and air-conditioner are not covered under the regular motor insurance policy unless you specifically ask for it and pay an additional premium.
For all rubber, nylon and plastic parts, tyres and tubes, batteries and air bags, the insurance cover assumes about 50 per cent depreciation. This means you will be compensated for the remaining 50 per cent of the value only. For fibre-glass components, 30 per cent depreciation is charged. For wooden, metal and other parts, depending on the age of the vehicle, depreciation may vary from 5 to 50 per cent.
So, read the policy document. In claims that you make, you will not be compensated for the entire amount.
Do note that claim rejection, quite often, could be because the vehicle owner is at fault.
Say, for instance, on a rainy day, you tried to drive your car through a water-logged area; the damages caused to the car are not directly because of the rains but because you drove the car through standing water. This is called ‘consequential loss’ and is not covered under standard motor insurance policies.
Also, remember, if you buy a second-hand vehicle and fail to transfer the insurance to your name, your insurer may not pay for the damages to your vehicle.
Puneet Sahani, Head-Product Development, SBI General Insurance, clarifies: “Third party insurance gets transferred automatically, but the own damage insurance will be transferred only if the new owner makes a request to the insurer. This has to be done within 14 days of purchase of the vehicle. Any claim that comes after the 14-day period will not be admissible if the policy has not by then been transferred to the new owner.”
Myth 3: Claiming is tedious
Sathya Kumar, a resident of Prabhadevi, Mumbai, says, “In the last 10 years I have changed two cars and I have claimed two times. But I feel it is a tedious process. So, many times, if my car suffers a scratch, a broken mud-guard or a dent in the dicky, I do not take the pain to go through the process…”
Our take: We suggest that at the time of buying the policy itself, one should check out the claim filing process to avoid hassles at the time of claim. Insurers provide a toll-free number for claims assistance, you can report the accident by calling this number. Many insurers have tie-ups with workshops across the city. If you take your vehicle to one of these workshops, you can avail of cashless service. Otherwise, the claim will be settled through reimbursement, which is cumbersome as it involves documentation.