Insurance companies are concerned about the lack of clarity in pricing and shortage of time to implement mandatory long-term third party motor insurance for new private vehicles.
In July, the Supreme Court had directed that such cover be provided for new private vehicles with effect from 1 September.
Motor insurers also apprehensive about the adverse impact of the long-term third party policy on own damage cover, reports The Asian Age.
Under the Supreme Court's order, new private cars sold wef 1 September should have mandatory third party cover of three years while two-wheelers should have similar cover of five years.
However, the IRDAI has not yet announced the pricing, commission rates and other details of the cover.
“The pricing has to be determined on the basis of actuarial estimates, and with past data available with IRDAI, the regulator has to come out with the details. We are still waiting for the announcement from the regulator,” said R Chandrasekaran, secretary general of the General Insurance Council.
According to him, the greatest challenge for insurers will be on the logistics front. With only half a month left, insurers have to disseminate pricing details across all outlets which sell new vehicles.
However, insurers find that determining pricing itself is a challenge.
“The regulator revises third party premiums every year based on the loss ratios in each segment. When premiums are fixed for a longer term, the pricing calculations have to be done based on projections,” said a top official of an insurance company. The pricing can either turn out to be inadequate for the insurance company or expensive for the customer.
Usually, insurance companies combine both third party and own damage cover while selling the motor cover. Paying the entire cover upfront for three years or five years will be a burden for the customers. “If the yearly premium of a car is INR28,000, paying INR84,000 upfront will be considered a burden," he said.
In such a situation, there are high chances that customers may not buy own damage policy for all the years together. Customers usually renew the motor cover, as the third party portion is mandatory. If the third party premium is already paid for the long term, customers may not bother to renew the own damage cover. This would mean significant loss of business for insurers because own damage accounts for almost 85% of the motor cover.
Industry players expect that the Court to extend the deadline for insurers to address all the issues related to its order. The Court had been concerned about poor compliance to requirements for mandatory third-party insurance of vehicles. One estimate is that only 60m of the 180m registered vehicles are insured. The majority of two-wheeler owners fail to renew their insurance policy after the first year.