Small-car spares play spoilsport for insurers

Car buyers may be rejoicing over the competition in the market that has seen small cars become cheaper and affordable.

But insurance companies are seeing red as their loss claims ratio in the small car (Rs 3-5 lakh) segment is showing a rising trend.

The change is primarily on account of manufacturers bringing down prices of such cars while prices of spares continue to rise.

In other words, the ratio between the price of a car and its components has changed adversely which means that replacing spares is expensive while the car itself comes cheap.

Mr Vijay Kumar, Head-Motor Insurance, Bajaj Allianz General Insurance, told Business Line that the claims ratio could now be more than 80 per cent for such cars against 50 per cent three years ago.

Expensive components

The high claims ratio is also due to the expensive components of these cars.

Mr Karan Chopra, Head Retail Business, HDFC ERGO, said: “The ratio between pricing of spare parts and sale price of the car has been adversely affected as manufacturers have been going in for aggressive pricing due to rising competition. This has brought down the overall cost of the car.

Earlier, for an insurance company, the cost of spare parts (whether indigenous or imported) was made good by the sale price of the car. However, now with the overall price of cars inching down, we have been noticing a rise in loss claims ratio.”

Low premium

A consumer may enjoy a low premium while insuring the vehicle as it depends on the ex-showroom price of the car.

However, if a claim arises in case of repair, the claim cost would be higher due to costlier spare parts.

This may lead to higher insurance premium in the subsequent years, Mr Kumar explained.

Apart from Maruti and Hyundai, a number of players such as Fiat, Ford, General Motors, Honda, Skoda, and Volkswagen have been aggressively looking at the small car segment.

The comparatively low cost of owning these vehicles has been driving up the volumes in the market.

This might lead to higher incidents of accidents, according to a research analyst.

Claims frequency

“Three years back the frequency of claim in the segment was low at about one out of every three vehicles. Now it has gone up to one out of every two vehicles,” Mr Kumar said.

He, however, clarified that every claim might not arise out of a major accident.

According to Mr Sanjay Datta, Head-Customer Service, ICICI Lombard, instances of accidents are lower for big cars as they were primarily chauffeur-driven, unlike the small cars, which were driven by the owner.

More accidents usually led to higher claims, industry insiders said.

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