Tag: car insurance

Third party motor insurance premium may go up in 2021-22

Banking & Finance

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The general insurance industry is hoping for an increase in third party motor insurance rates for 2021-22.

The rates are notified by the Insurance Regulatory and Development Authority of India (IRDAI) on an annual basis and had not been changed last year due to the Covid-19 pandemic.

The new rates for 2021-22 are yet to be notified by IRDAI.

According to general insurers, the premium needs to be revised in order to make the segment sustainable.

Further, court judgements in the recent past have also had an impact on the sector.

“Our view is that last year we didn’t get a hike in rates . Before that in February 2020, exposure draft for an increase had come but then the first wave of Covid happened and that was put in the cold storage,” Bhargav Dasgupta, Managing Director and CEO, ICICI Lombard, General Insurance, had said after the fourth quarter results in a media call.

Responding to a question, he had also pointed out that court judgements had had an impact, even on past claims. He, however, did not comment on the expected quantum of hike in rates.

The Covid -19 pandemic and lockdown had brought down motor claims in the initial months but they have started coming back to normal, according to insurers.

Meanwhile, industry data indicates some traction in motor insurance premium in recent months.

In 2020-21, motor third party premium increased by 4.4 per cent to ₹10,650 crore compared to ₹ 10,198 crore in 2019-20.

However, on an overall basis, motor premium fell 1.68 per cent to ₹ 67,790 crore last fiscal.

“In 2021-22, along with the expected uptick in the health segment, any increase in the premium levels of the Motor TP segment, which was held steady in 2020-21, could drive the non-life premiums,” Care Ratings had said in a recent report.

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How your motor insurance comes handy in case of breakdown

Personal Finance

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Two neighbours’ daily routine of watering plants leads to an interesting conversation.

Sindu: Hey, you missed the event on plant protection. It was so informative. There are so many simple hacks to grow plants.

Bindu: Oh! I so wanted to come but my car broke down and my entire morning went away in getting someone to bring a mechanic.

Sindu: What? You could have asked your insurer for RSA? Or didn’t you opt for the rider?

Bindu: I don’t even know what RSA is, to start with. So, how do I say whether I have opted for such rider?

Sindu: RSA stands for roadside assistance. It can be of great help, in the event of a breakdown of your car, like it happened yesterday, or in case of an accident. All you need to do is to call your insurer company and inform them about the problem and your location. They either offer help over the phone or send a representative (mechanic) to your location

Bindu: What if the problem isn’t resolved?

Sindu: Then, your insurer/mechanic will arrange for the car to be towed away to a nearby garage for repair. Also, as part of the RSA cover, some insurance companies arrange for your accommodation till the issue with your vehicle is resolved. Alternatively, you can avail of a taxi service to office/house. This facility is, however, provided to only one destination.

Bindu: This is great news! What are all the services that RSA covers?

Sindu: The list of services varies across insurers. But broadly the RSA should provide coverage for mechanical/electrical breakdown, towing the car, fuel delivery (you will have to bear the fuel charges though), flat tyre, minor repair services, spare keys for your car, accommodation, travel/taxi arrangement and cost of legal advisor.

Bindu: Good. If I had known about this, it could have saved me lot of trouble.

Sindu: Hold there. RSA is mostly offered as an add-on cover with your motor insurance. That means, you will have to pay additional premium to avail this rider. So unless you opted for this cover specifically, your policy will not cover you.

Bindu: Killjoy. Oh well, I wouldn’t mind it, if it comes to my rescue during an emergency.

Sindu: True. But think through a few points carefully, before you buy the rider. One, older your car, the higher will be the chances of mechanical problems. So, many insurers will not be willing to offer this cover for such cars. Two, if you use your vehicle to travel long distances frequently, it is advisable to opt for this cover. But some dealers offer RSA for new vehicles too. So, you can go for RSA with an insurer after the expiry of dealers’ services contract.

Bindu: Okay… is there any limit to the number of times I can avail this service?

Sindu: Yes, but Insurers cap the number of times, limit but the cap varies with each insurer. For instance, ICICI Lombard offers RSA for maximum of four claims.

Bindu: So, now that you have told me the positives, what are the exclusions?

Sindu: The general exclusions that apply on your motor cover, apply to this too. But specifically with respect to this rider, you shouldn’t use the vehicle for any illegal activities like motorsports. Your driving should be as per rules and regulations and the insurer should be informed about the breakdown or RSA requirement immediately. If you get repair work done without the insurer’s approval, you claim could get rejected.

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How your insurer arrives at rate of depreciation

Personal Finance

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Two neighbours’ daily routine of watering plants leads to an interesting conversation.

Sindu: Adding new pots to your garden?

Bindu: Yes. I bought them from Bandu. Though the mud is good and the pots are in good shape, I had to pay a hefty sum for them. More than the price at which she must have bought them I’d say!

Sindu: Well, that is business.

Bindu: I wish this applied to everything I sold… like the other day, I sold my bike for a price nearly 80 per cent lower than at which I bought it.

Sindu: Well, that’s how it works! The new car you purchased a few weeks back, too will be purchased for a value far lower than its market value. Even your insurer will settle claims at a value lower than the purchase price.

Bindu: What! Why is that?

Sindu: Because, insurers take depreciation of a vehicle into account before making the claim payment. This is so, even for new vehicles. In motor insurance, this is termed as insured declared value or IDV. It is the monetary value of a vehicle as fixed by an insurer and equals the current market value of your vehicle after deducting depreciation. It is the maximum sum insured (amount payable) for your vehicle, in case of partial/total loss or theft. In other words, it is the amount that your car could fetch in today’s market, if you were to sell it.

Bindu: What factors go into IDV?

Sindu: To arrive at the IDV, insurers consider details such as the date of registration, make and model, and the actual price of the vehicle is adjusted for depreciation.

Bindu: So many things! Wait, how is the rate of depreciation arrived at?

Sindu: The rate of depreciation depends on the age of the car. In case of a new car, IDV is usually calculated based on the manufacturer’s listed ex-showroom price, minus 5 per cent depreciation. For vehicles that are more than five years old, IDV is calculated based on the vehicle’s assessment by surveyors from the insurance firm.

Bindu: Okay. So why should I pay attention to this value?

Sindu: The insurance premium for a vehicle is calculated as a percentage of the IDV. Normally, insurers disclose the IDV calculation on their respective websites and in the policy document. Say, your vehicle is one year old. Then your depreciation would be around 10-15 per cent and this will be used for arriving at the IDV. Higher the IDV of your vehicle, higher your premium and vice versa.

Bindu: I’ll just quote a low IDV and save on the premium.

Sindu: Yes. But at the time of claim, you will bear the brunt of it..

Bindu: How so?

Sindu: At the time of a claim, the amount is paid out based on the IDV of your vehicle which is based on the age of the vehicle, model and kilometres it has run and so on. So, if you under estimate your vehicle value to save on premium, your claim amount too is lowered. This is one of the most crucial factors to keep mind when getting your car insured, so that in times of need you receive the right amount of compensation.

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How cashless garage facility benefits you

Personal Finance

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Two neighbours’ daily routine of watering plants leads to an interesting conversation.

Bindu: I see you have a lot of new pots.

Sindu: Yes. I wanted to grow some vegetables at home.

Bindu: Quite an investment, I would say. How did you get all the seeds and pots on the same day?

Sindu: Yes. But the pot sellers had a tie-up with the seed vendors. So, I got seeds with all the pots I purchased. I also got a few seeds for free.

Bindu: Good for you. This is similar to the cashless benefit in insurance.

Sindu: How so?

Bindu: Well, take motor insurance for instance. You get cashless garage service for the premium you pay. You can get the insured vehicle repaired at the issuer’s network garages without having to pay for it. Network garages are those that the insurance companies have tied up with to provide cashless services to their policyholders. You can check the list of garages with their name, address and contact number in your policy document or on the insurer’s website.

Sindu: How does this help? We get garage services anyway from the car company or the authorised dealer.

Bindu: Yes. But when your vehicle is damaged due to an accident, you can approach any of the network garages for cashless service. That is, once the repair work is done, the garage service provider will issue an invoice to the insurer directly who will bear the expense. The authorised dealer, you mentioned, could very well be part of your insurer’s network or not.

Sindu: That’s a great service. So, how do I go about it if my vehicle is damaged?

Bindu: The first step is to inform the insurer about the damage. Post the intimation, the insurer inspects the vehicle. Then a request for cashless service is initiated. Once the request is approved, the insurer takes care of all the expenses on repairing your vehicle. Some insurers also offer to tow your vehicle to the network garages!

Sindu: This is a huge relief!

Bindu: But remember, the insurance company will pay only for those damages that are covered under the policy. If parts of the car, such as the interiors including speakers and radio which are usually beyond the policy coverage, suffer damage, then you will have to bear the expense.

Sindu: Any downsides?

Bindu: Cashless garage is a huge advantage, especially when repair work has to be done and you are short of funds. However, this service may not be available across all cities or regions. Also, if you go to a garage which has no tie-up with your insurer, then you will have to pay for the repair work and get reimbursed from your insurer.

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How zero depreciation cover works

Personal Finance

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Two neighbours’ daily routine of watering plants leads to an interesting conversation.

Sindu: Looks like most of my pots need repairing.

Bindu: Wear and tear spoils them every year.

Sindu: Yes, and burns a hole in my pocket, too, every time I fix them.

Bindu: It’s best to replace your pots before they start ruining the plants. That’s how it works for other things.

Sindu: Okay. So, how do you protect yourself from wear and tear?

Bindu: Not yourself, but your vehicle! In motor insurance, you can opt for what’s called a zero depreciation cover.

Sindu: What is that?

Bindu: Well, under a regular motor cover, when you make a claim, your insurer will apply the depreciation rate to the damages sustained by car parts such as metals, tyres, paintings, batteries and glass. These are deducted before the final payment (for car damage claim) is made to you. So. But a zero depreciation cover offers complete coverage for all parts of a vehicle without any deduction of depreciation. That’s why it’s also called bumper-to-bumper insurance.

Sindu: Good! I will just take this cover for my good old car.

Bindu: Ha, there’s the catch! It is not for all cars. Zero depreciation is beneficial only for new cars or for cars up to three years old. Some insurers do offer this for cars that are up to five years old. It can also depend on the kilometres your car has clocked.

Besides the number of claims under a zero depreciation cover is limited and varies from one insurer to another.

Sindu: Alright! But is it pricey?

Bindu: Well, the zero depreciation rider will usually cost 15-20 per cent higher.

Sindu: That’s a lot. But given the advantages, it seems worth the money.

Bindu: It is, but it comes with a few downsides.

One, the policy doesn’t cover damage to the car engine due to water ingression or oil leakage. Two, it doesn’t cover standard wear and tear to components such as clutches, bearings and plates, and mechanical failure not due to accidents. More importantly, there is a compulsory deductible clause in the event of any claim, just like it is for many standard motor insurance cover. So, before you opt for this cover, find out the all details.

Sindu: Any other exclusions, I should know of ?

Bindu: No claim will be paid if the driver was driving without a valid driving licence or if he is found to be drunk!

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How no-claim bonus works – The Hindu BusinessLine

Personal Finance

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These neighbours’ daily routine of watering plants lead to a conversation on how a no-claim bonus works

Bindu: Soon these plants will start flowering — a reward for all the good care.

Sindu: Yes, if it pays my bills, why not!

Bindu: You can earn rewards from paying bills, too, sometimes.

Sindu: Is that so? How?

Bindu: Well, take motor insurance, for instance. Your insurer will reward you if you have been a good driver the previous year.

Sindu: My insurer will pay me cash if my vehicle wasn’t involved in any accident, is it!

Bindu: Ha ha! You’re expecting too much! The insurer will give you a discount on your motor insurance policy. It’s really not about having an accident either. You’ll get a discount as long as you haven’t made a claim in the past year. This is called no-claim bonus, or NCB.

Sindu: Does that mean I don’t have to pay any premium at the next renewal?

Bindu: No, no. You get a 20 per cent NCB discount if there is no claim filed by you during the first year. After that, you get an additional 5 per cent discount from your second year.

If you did not make any claims for a few years, you could earn discounts of up to 50 per cent at the end of five years.

Sindu: This is good. But surely there must be strings attached?

Bindu: Clever of you! This is only available on your own-damage cover and not on the third-party portion of it.

Sindu: But what happens to my reward if I sell my vehicle?

Bindu: NCB is for the policyholder and not the vehicle. Therefore, even if you replace your existing car or bike, as long as you have been renewing the motor insurance policy, you get to retain your NCB. NCB is not transferable. This means that if you sell your vehicle, you can retain your NCB by obtaining an NCB retention certificate from your insurer. This will help you get a discount on the premium when you buy the next vehicle. Check with your insurer about the validity of this certificate. It is usually valid up to three years.

Sindu: So, NCB will only benefit me if I haven’t made any claim. But my car always takes a few knocks — you know how people drive!

Bindu: Well, there is a solution for that as well. Some insurance companies, such as ICICI Lombard and Reliance General Insurance, offer NCB add-ons to protect the benefit you receive.

So, if you opt for this add-on cover, it allows you to keep the NCB discount even if you raise any claim request, up to a certain limit.

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