Multiple cars, one policy: Irdai's latest announcement a boon for many

The upper middle class and the rich will be happy with the Insurance Regulatory and Development Authority of India’s (Irdai’s) latest announcement - the unbundling of compulsory personal accident (CPA) cover. 

Starting from January 1, 2019, vehicle owners will be able to purchase a standalone CPA cover. The CPA cover will also be available with the third-party liability policy and the comprehensive policy (third party plus own damage), as it is today. However, customers who have bought a standalone CPA policy worth Rs 1.5 million or more will not have to buy it again when they buy a motor vehicle policy.      

To understand the implications of this development, let us rewind a little to what has happened in the recent past. A motor insurance policy has three components: third-party liability (TP, which covers damage to others), own damage (or OD, which covers damage to owner’s vehicle), and personal accident (PA) cover. Third-party and PA comprise the mandatory part of the motor cover while OD cover is optional. In September, the Madras High Court said that the minimum Rs 100,000 PA cover on bikes and Rs 200,000 on cars is inadequate. The premium on these covers was Rs 50 and Rs 100 respectively.  Irdai then hiked the minimum PA cover to Rs 1.5 million and fixed the premium on it at Rs 750. 

Earlier, when the premium for the PA cover was Rs 50 or Rs 100, people did not notice it. But once it was hiked to Rs 750, it became a considerable portion of the cost of the policy, especially for bike owners. A complication arose thereafter. “Somebody who has multiple vehicles is currently paying the Rs 750 premium in all those policies. But the risk is not double or triple. An owner-driver can be driving only one car or bike at one point. In case of an event, he would be reimbursed by one policy only,” says Sajja Praveen Chowdhary, business unit head-motor insurance, Policybazaar.com. Irdai has made the latest changes to do away with this issue. 

Points to ponder over

• Intermediaries may try to sell you a PA cover each time you go to buy or renew your motor insurance. Refuse to do so    
   
• No system currently exists for insurers to know whether you already have a PA cover. Do not avoid buying this compulsory cover
   
• To cover driver and co-passengers, pay separately for covers for them  
   
• To boost the PA cover, you may buy Pradhan Mantri Suraksha Bima Yojana, which offers Rs 200,000 cover for a mere Rs 12 a year
   
• If buying a multi-year cover, which has high cost, compare costs and buy only those add-on covers that you really need 

These announcements have several implications. “Until now, when an individual bought a TP or a package policy, he had to mandatorily buy a PA cover. Now, if the customer already has an existing personal accident and disability cover, not necessarily purchased with an auto insurance policy, he doesn’t need to buy it again, provided the sum insured is Rs 1.5 million or more,” says Onkar Kothari, compliance officer, Bajaj Allianz General Insurance. 

General insurers will now also sell standalone PA covers with sum insured of Rs 1.5 million or more. They will be allowed to charge a premium for these policies based on features and actuarial principles. “It is possible that competition will drive the cost of this standalone CPA cover lower,” says Chowdhary. 

The latest regulatory changes will also provide relief to owners of multiple vehicles. “A person who has several vehicles need not pay Rs 750 for PA cover in each of these policies. He will need to pay for it only once, or not at all if he already has a standalone PA cover,” says Animesh Das, head of product strategy, Acko General Insurance.