Long-term comprehensive policy for two-wheelers to be an expensive affair

The premium rates for a three-year policy could be as much as 2.5 times higher than on an annual basis

Comprehensive motor insurance policies for two-wheelers and private cars may turn out to be an expensive proposition for policyholders, with premia expected to be as much as two-and-a-half times more than what it would cost on an annual basis. While a three-year policy eliminates the need for annual renewals, it also means that the buyer is locked into the same premium amount for that period. Hence, insurers would price the product taking into consideration the future expected claims and inflation, if any.

Insurance Regulatory and Development Authority of India (Irda) had introduced long term third party motor insurance policy for two-wheelers with a three-year term in late 2014. Comprehensive motor policies include motor third party (TP) and motor own damage (OD) policies. 

“Pricing would be adjusted as per the market rates. The products would be priced at least 2.5 times higher than regular premiums for one-year products on an average. This is accounting for claims in that segment, historical data and other losses," said the head of claims in a private general insurance company.

Irda had said that the total premium charged for the third party three-year coverage would be three time of the annual TP premium for two wheelers, which would be decided by the regulator. Motor TP premium is regulated by Irda and the regulator brings out revised rates for these policies every year, based on claims experience. TP motor insurance is mandatory in India.

The regulator also said that the premium would not be revised upwards or downwards during the period of the policy. While the regulator has begun with the two-wheelers segment for the long-term policy, it is expected that this will be extended to private cars, too. However, the pricing norms would still be the same.

New India Assurance, the country's largest general insurer has already got the regulator's nod for a comprehensive two-wheeler policy with a term of three years. This will be launched after few weeks. Here too, the pricing is expected to be twice or above that of the one-year product.

The regulator has said that since there is also a need to have long term comprehensive cover including own damage and TP covers, insurers can also file 3-year term comprehensive policy for two wheelers.

While the own damage motor segment covers losses to self during accidents, motor TP covers liability to a third party caused by a vehicle owner during an accident.