Policyholders likely to gain as Irdai proposes changes to motor policy

For partial loss claims, age-wise depreciation has been recommended, wherein if the vehicle is less than a year old, the depreciation will be 10 per cent

A working group of the Insurance Regulatory and Development Authority of India (Irdai) has proposed age-based depreciation in value of vehicles to calculate the sum assured for motor vehicles in a bid to remove subjectivity and ambiguities in claim settlements.

The working group has said that for private cars, the sum insured can be computed by taking the current listed price of the vehicle, including the value of all accessories fitted by the manufacturer, and adjusted by age-wise depreciation. It said the sum can also be computed by taking the current day on-road price, including invoice value, road tax and registration charges, plus the value of all accessories fitted thereon by the manufacturer.

In the second option, for cars up to three-year-old, no depreciation will be applicable. For calculating the sum assured for cars into their fourth year, 40 per cent depreciation will be applicable. Similarly, 50 per cent depreciation will be applicable for cars into their fifth year, 55 per cent for those into their sixth year, and 60 per cent for those even older. For those beyond their 7th year, the sum insured shall be at a mutually agreed value between the insured and the insurer.

In case of two-wheelers, the sum insured will be computed by taking into account the current-day listed price of the vehicle, including the value of accessories fitted thereon by the manufacturer, and adjusted by age-wise depreciation. For six-month-old two-wheelers, the sum will be 95 per cent of the listed price.

For other classes of vehicles, the sum assured will be computed by considering the on-road price of the vehicle at the time of purchase, including invoice value, road tax, and the cost of all accessories fitted by the insured adjusted for depreciation.

For partial loss claims, too, age-wise depreciation has been recommended, wherein if the vehicle is less than a year old, the depreciation will be 10 per cent.

The working group has said that a motor own damage policy for a period of less than a year can be issued only in special circumstances. Also, a standalone own damage cover may be issued where long-term liability policy is mandated. Among other suggestions, the group pitched for adopting telematics for motor insurance.

“A central repository of telematics data can be created. IIBI, which acts as the data repository for insurance companies, can manage the data and its protection,” the working group said.

Insurers believe the new draft guidelines are in line with the global standards and will better the underwriting practice of insurers. “This will take care of the fast-changing eco-system of insurance,” said Arun Singh Bhadauria, head-Motor Insurance, Universal Sompo General Insurance.

Subramanyam Brahmajosyula, head - Underwriting and Reinsurance, SBI General Insurance, suggested: “Instead of relying purely on the vehicle characteristics for determining coverage and premium, factors such as driver behaviour and geography could be used for motor underwriting.”

What draft guidelines say

• Depreciation percentage has been worked till 7 years of age

• For cars up to 3 years no depreciation will be applicable

• Those who can drive the vehicle shall be mentioned in the policy; the current policies are only vehicle-related

• New restricted cover: Total loss + liability

• In-built medical expense cover of Rs 25,000 

• Standard towing limits available in policy increased