No depreciation for cars up to 3 yrs, sum insured based on on-road price: IRDAI proposal
The Insurance Regulatory and Development Authority of India (IRDAI), on Monday, proposed changes to the structure of motor insurance policies that can make it simpler. And also, you will get partially-higher amount of insurance cover for your vehicle.
In a draft proposal released on Monday, the insurance regulator stated, "Considering the various developments in technology relating to motor vehicles as well as the fast changing eco-systems, IRDAI had set up a Working Group to revisit the product structure in respect of motor own damage segment."
Here is a look at some of those recommendations.
Recommendations for changes in sum insured for motor insurance
Among the proposals, IRDAI is working on making depreciation and sum insured calculation simpler. "Vehicle age-based depreciation has been recommended for partial losses to make it completely objective and remove all ambiguity and subjectivity in claim settlement."
For new private cars up to three years, the sum insured will be based on the on-road vehicle price, manufacturer accessories, as well as road tax/registration. No depreciation will be applicable for first three years for private vehicle. After that, depreciation will be charged at certain percent, depending on the age of the vehicle from three years till the 7th year. However, after seventh year a mutually agreed value between the policyholder and the insurer can be arrived for applying depreciation.
In the IRDAI draft proposal, the regulator has given the following recommendations:
a) For private cars and two wheelers (other than brand new)
The Sum Insured shall represent the current day manufacturer’s listed price of the vehicle insured including value of all accessories fitted thereon by the manufacturer, and adjusted by age wise depreciation to arrive at the sum insured as per new depreciation table suggested.
b) For private cars only
Brand new private car upto 3 years: The Sum Insured shall represent the current day on-road price of the vehicle insured including Invoice value, Road Tax& Registration charges and value of all accessories fitted thereon by the manufacturer. The value of accessories fitted by the Insured shall be separately mentioned.
For vehicles beyond three years: The Sum Insured shall be as per the suggested new depreciation table. Beyond 7th year, Sum Insured shall be arrived at a mutually agreed value between the Insured and the Insurer.
c) For commercial vehicles
The Sum Insured shall represent the current day invoice value plus cost of body building, if any, and all accessories fitted thereon by the manufacturer adjusted for depreciation at the rate of 10 % per year or part thereof subject to maximum of 75%. For Total Loss, Theft and Constructive Total Loss claims, the amount payable shall be the Sum Insured.
d) For all classes of vehicles (Option)
The WG recommended that Sum Insured shall represent the on-road price of the vehicle insured, at the time of purchase of the vehicle, including Invoice value, Road Tax and all accessories fitted thereon by the manufacturer plus the value of the accessories fitted by the Insured. A new depreciation table is suggested upto 15 years, according to the draft proposal.
Currently, the depreciation ranges from 5 percent for vehicles upto six months old to 50 percent for vehicles that are five years old.
Sajja Praveen Chowdary, Head- Motor Insurance, Policybazaar.com said that on the sum insured part, earlier IDV(Sum Insured equivalent) it was arrived basis depreciation on ex-showroom price. Now, the sum insured will be invoice value including registration and road tax for up to 3 years and post 3 years also, the sum insured will be basis depreciation on such invoice value(including registration charges, road tax). "The sum insured will increase nominally for one time but, it will be a lot more beneficial and less confusing for customers," he said.
Standardised grid for non-claim bonus
IRDAI has also proposed to standardise no-claim bonus (NCB) for long-term policies. At present, vehicle owners with long-term motor insurance policies lose out on the annual NCB. For an annual cover, the NCB on renewal ranges from 20-50 percent and if you have a long term policy, you are eligible for NCB only after the policy tenure expires.
According to the draft proposal, IRDAI has clarified that the entitlement of NCB "will be applicable for the substituted vehicle subject to the provision that the substituted vehicle on which the entitled NCB is to be applied is of the same class (as per these Regulations) as the vehicle on which the NCB has been earned and subject to submission of evidence of sale of the vehicle on which the NCB was earned."
Further, "Where the insured is unable to produce evidence of NCB entitlement from the previous insurer, the claimed NCB may be permitted after obtaining a declaration from the insured or verification with IIBI database."
Here is a look at all of the other key recommendations:
- General Regulation (GRs) have been rationalised and renamed as Motor General Regulation (MGRs) and all pricing related GRs have been deleted.
- Revised schedule of compulsory deductibles based on Sum Insured has been recommended.
- For brand new private cars, a new sum insured option has been recommended where 'Return to Invoice' is a part of basic cover.