Luxury cars segment profitable despite more claims

India has one of the world's largest high networth population, which is pushing demand up for luxury cars

Insurance Information Bureau (IIB)’s Insurance Dynamics of Luxury Cars study has shown the segment to be profitable in the own damage (OD) section though the cost of repairing or replacing a part is pretty high for these cars. (Own damage means if your own vehicle is damaged, you can get the insurer to pay, whether or not you are at fault.)

The study shows after full claim development, the segment had an incurred claim ratio of only 57 per cent. India had the 12th largest high networth population (HNP) in the world in 2010, growing at around 20.8 per cent, ahead of China.

Subsequently, demand for luxury cars, one of the fastest growing segments in India, is high.

In 2009, the Insurance Regulatory and Development Authority (Irda) formed IIB to act as a reference for the sector.

The study was undertaken to understand the insurance dynamics of this segment based on policies and claims incepted during April-September 2011 for the claims developed till October 31, 2012.

Luxury cars were defined as those with insured declared value (IDV) greater than Rs 25 lakh (Mercedes, BMW and Audi cars start from around that price); premium sedans and hatchbacks do not count as luxury cars.

The study showed the average premium for luxury cars was Rs 80,800 against average private care premium of Rs 7,246 for 2011-12.

The frequency of OD claims was 40 per cent and claims severity was Rs 1,09,890, whereas for non-luxury private cars the frequency was 19 per cent and severity Rs 18,157.

The report said 78 per cent of luxury cars were in the IDV band of Rs 25-50 lakh. Of these, 52 per cent less than a year old and contributed 46 per cent of the claims.

Forty-nine per cent of claims incurred was in the range of less than Rs 50,000 and the frequency was highest for cars in the IDV band of Rs 1-1.5 crore. Most policies and claims in this band were from Maharashtra, Delhi, Tamil Nadu and Harayana.

The OD incurred claim ration of luxury cars was 57 per cent for policies incepted during April-September 2011, based on the claims that had developed till October 2012.