Grappling with lower automobile sales, the general insurance companies are adding a new teaser feature in the auto insurance policies. Towing and roadside assistance is an additional feature offered by general insurers (such as Oriental insurance and Bajaj Allianz among others) in their auto insurance policy, whereby one would be provided with a direct towing service from the insurer in case of a flat tyre, keys locked in or car running out of fuel. Thus say if your vehicle is damaged, and cannot be driven to the repair shop, the insurance company will tow your car to the repair shop and also will foot the full cost of the towing service and labour involved.
However, it is noteworthy that most insurance policies offer this only twice in a year, and the benefit comes at an additional premium (which may vary from Rs 350 to Rs 1,000 for a year for a possible claim that could go upto Rs 30,000).
(Source: SIAM, PersonalFN Research)
The reason to introduce such a feature…
While in the last 7 financial years as revealed by the chart above, the auto industry had witnessed a steady growth; the last calendar year was not very enthusing for the Indian auto industry – especially the passenger vehicle segment, as they experienced dampening sales due to a high interest rate regime (on account of anti-inflationary monetary policy stance taken by the Reserve Bank of India).
(Source: ACE MF, PersonalFN Research)
The table above also reveals that due to the high borrowing cost and elevated input cost (due to inflation), the market too was cynical on the auto sector (including automobile manufacturers and auto component manufacturing companies), which also paved a rough road for the auto industry.
Our view:
We believe that while this teaser feature provides an additional benefit at an additional cost (which is the additional premium paid), nauseating experiences cannot be ruled out. While many general insurance companies may argue that with technological advancement such a feature is essential due to little scope for owner’s intervention; we think that for new vehicles (for which such policies would be issued), such a teaser feature may not be suitable as the risk of breakdown is far lesser. But having said that, if the benefit offered for the premium paid is appealing then one may avail of the feature.
In the commercial vehicle segment however this feature does not apply at present, and general insurance companies are smart not to introduce it, as the risk of breakdowns is far higher. Moreover, even if they do introduce owners of commercial vehicles would have to shell out a mighty sum as a premium to avail of such a teaser feature.
