Money & Banking

IRDAI withdraws long-term motor cover for new cars, two-wheelers

G Naga Sridhar Hyderabad | Updated on June 09, 2020

In a significant move, the Insurance Regulatory and Development Authority of India (IRDA) has withdrawn permission for motor long-term cover.

“The authority has decided to withdraw the long-term package cover offered for both motor third-party insurance and own damage cover for three or five years for new cars and two-wheelers, respectively, with effect from August 1,” said IRDAI in a circular on Tuesday.

The long-term cover was introduced in September 2018. However, the insurance regulator had noticed some issues and concerns in the performance of these policies, which led to its withdrawal.

“Actuarial pricing has been a challenge for insurers in long-term own damage cover. Distribution of package policies has also its challenges due to affordability factors for a large section of vehicle owners,” said TL Alamelu, Member, Non-Life.

The possibility of forced selling due to financial interest, which is also linked to loans, was also high.

“In case of deficiency of services, policy holders will be saddled with a long-term product with no flexibility of change,” saif the IRDAI member.

Another problem, according to the regulator, is lack of uniformity in ‘no claim bonus’ structure, which could lead to confusion and dissatisfaction among policyholders.

No claim bonus in respect of long-term policies already issued will accrue only when the policy term has been completed.

Impact of move

The decision of the regulator will impact the motor insurance in several ways. “First, the gross premium being underwritten will come down for obvious reasons,” a CEO with a private general insurer told Business Line.

There are large a number of two-wheelers and cars that ply on roads without insurance. “Without long-term cover at the time of purchase of vehicles, renewals might come down,” he added.

Published on June 09, 2020

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor