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Motor insurance: Now buy standalone own damage cover

Saikat Neogi
Motor insurance, car insurance, standalone damage, Insurance Regulatory and Development Authority of India, Irdai, money, insurance news, policy holder, Motor Vehicles Act,

Vehicle-owners can now buy standalone annual own damage covers for cars and two-wheelers from any general insurance company. From September 1, insurers cannot bundle own damage and third-party insurance cover compulsory to a policyholder. “For issuance of standalone own damage annual cover as well as for renewal of the own damage component of a bundled cover, insurers shall ensure that own damage cover is offered only if a motor third-party cover is already in existence or is taken simultaneously,” says a circular issued by Insurance Regulatory and Development Authority of India (Irdai).

No bundling of own damage cover

Policyholders will have the option to renew the own damage component of a bundled cover on or after September 1, with the same insurer or different insurer, on an annual basis. Name of insurer, policy number, start date and end date of third-party policy will be indicated in the own damage policy document. The standalone own damage policy will clearly mention that the coverage is only for own damage.

The regulator has underlined that the pricing of a standalone own damage policy will continue to be that being offered for the own damage component of a package policy. Last year, the Supreme Court had mandated that all insurance companies have to sell long-term third-party insurance cover for all new vehicles—three years for cars and five years for two-wheelers. The objective was to reduce the number of uninsured vehicles on the road. Moreover, long-term third-party insurance would reduce the hassles of renewing the policy every year and an increase in the number of insured vehicles could bring down the premium as the risk pool becomes larger. Also, policyholders would have some stability in rates for a defined period. For insurers, long-term third party will lead to higher penetration and premium volumes.

However, experts say, insurers started bundling the insurance covers and customers were stuck with the same insurance company for that period. Policyholders could not bargain for discounts and did not have any flexibility to change the insurance company for that period.

Comprehensive cover

Third-party motor insurance is mandatory under the Motor Vehicles Act. In case of road accidents and fatalities there is no legal time limit on insurance claims. Third-party insurance only covers the damage done by one’s insured vehicle to other vehicle or property and people and does not cover accidents, theft or damage to one’s own vehicle. While the premium for third party liability cover is limited and is fixed by the regulator every year, claims are unlimited. As a result, the non-life industry bleeds on this portfolio.

Policyholders should look at a comprehensive cover which takes care of the own damage portion, especially loss or damage due to fire, explosion, accidents or while in transit by road or rail, and even burglary and theft. A comprehensive motor insurance cover comprises own-damage and third-party insurance.

Riders, which are optional add-on covers, can save car owners from unnecessary vehicle-related expenses. One can take add-on covers to the basic vehicle insurance and the pricing is based on the Insured Declared Value (IDV) of the vehicle. Insurers fix the IDV of the vehicle every year at the time of renewal of the policy based on the year of manufacturing, selling price of the brand and the model and depreciation of the vehicle.

In zero or nil depreciation cover, policyholder gets full claim on the value of parts such as plastic items, fibre, rubber, windscreen that are replaced in the event of loss due to accident. Engine cover rider provides protection to the engine in case of flooding as hydro-static lock is a major cause of engine failure.

With the regulator mandating stand-alone own damage policies, insurance companies will have to file a letter of intent to it for the Unique Identification for the stand-alone own damage product/add-ons.