Insurance double whammy hits two-wheeler cos

Over the last week, two-wheeler companies have been at their wits end coping with a diktat from the Insurance Regulatory and Development Authority of India (Irdai).

A circular dated September 20 has made mandatory an increase in the compulsory personal accident cover for two-wheelers from ₹1 lakh (₹2 lakh in the case of cars) to ₹15 lakh.

This comes close on the heels of a Supreme Court directive of September 1, where third-party premiums have been increased to five years and will be collected upfront for two-wheelers. That by itself has translated into a hefty hike but the directive of September 20 will only add to the cost burden at the point of sale.

Sudden move

“What has been particularly baffling is that the latest order has asked for immediate implementation. Nobody had a clue that it was coming and we are still groping for answers,” says an official of a two-wheeler company.

The reality is that there are irate customers at dealerships who are absolutely gobsmacked at the turn of events because their aspirational bike or scooter has become hugely expensive overnight.

Just to put things in context, the premium on average for the commuter segment (100-125 cc) was in the range of ₹1,800 till August 31 and has jumped nearly three-fold to a little over ₹5,000 with the Supreme Court order the following day.

Now, if that was steep, worse followed on September 20 with the Irdai directive on the hike in personal accident cover, which now leaves the total insurance payout for bikes and scooters at levels closer to ₹9,200. In other words, this is a hike of over five times since the beginning of this month, which has left manufacturers perplexed, worried and annoyed.

Cars have been hit too but it is a different ballgame for two-wheelers, which are priced substantially lower. A Hero Splendor or Honda Activa costs a tenth of a hatchback, which is priced at ₹6 lakh. For a car buyer, even the higher insurance component still forms a smaller percentage of the overall acquisition cost.

Hefty increase

Not so in two-wheelers and the situation gets progressively worse for entry-level models like the Bajaj CT 100, where the insurance component takes up over 25 per cent of the ex-showroom price of nearly ₹35,000. This translates into a little over ₹8,500, which is a lot of money in this product category.

Going higher to models like TVS Sport and Hero HF Deluxe, the insurance percentage still hovers comfortably over 20 per cent with payouts of over ₹8,500 for bikes with ex-showroom prices of ₹39,000 to ₹43,000. For the more expensive Bajaj Platina and TVS Jupiter, the story remains unchanged with the insurance add-on being over ₹9,000.

The ₹50,000-plus executive commuter bikes like Hero Splendor, Honda Activa, Hero Passion, Honda Shine, etc, now have this added baggage of ₹9,000-plus, which is a hefty complement to their price tags.

Impact at dealerships

“Given that the commuter segment accounts for a lion’s share of sales, this move will have a huge impact on customer sentiment. This is a country where bikes and scooters are the preferred mode of transport and what is the big idea in making them more expensive?” asks another executive of a prominent two-wheeler company.

On an average, the insurance component for the overall two-wheeler commuter segment is 18 per cent of the cost of the bike, up from three per cent just a day prior to the September 1 order. This also comes at a time when companies are already grappling with the challenge of high material prices, especially steel.

What is even more inexplicable is that the September 20 circular prescribes a blanket increase for all categories of vehicles, be it cars or two-wheelers. As an industry source says, this is simply not tenable in a country like India where the car buyer is more affluent than their counterparts buying a bike or scooter.

“Nobody is trying to suggest that two-wheeler riders should not be liable for accidents but this is carrying things a little too far. You just cannot stuff this down people’s throats and there is going to be a lot of resistance at dealerships,” says a company official.

This has apparently started across showrooms where customers who booked a two-wheeler prior to September 20 now find that it is more expensive. Naturally, they are protesting while dealers are struggling for answers. “It is a difficult situation and we just don’t know where to begin. This could turn out to be a full-blown crisis,” admits another official.

‘Rude shock’

The fact that nobody’s opinion was sought on this issue has raised the hackles of manufacturers since they rightly see themselves as important stakeholders in the ecosystem. Beyond this are the dealers, financiers and the customer who all play a role in keeping the growth story going.

“Nobody was consulted and this latest circular was a rude shock especially when it clearly mandated immediate implementation. This was literally a bolt from the blue that left us shell-shocked,” says a harried executive. It is perhaps too early to predict to what extent this will impact sales but it will be sizable for sure. After all, this is a country where per-capita levels are still low, which is understandable given the huge levels of income disparities. For someone who has struggled to save money for a motorcycle or scooter, the prospect of paying another ₹9,000-plus over and above the ex-showroom price of ₹55,000 for an Activa or Splendor is a tall order.

The fact that the hike will not vary dramatically across two-wheeler categories also means that it is not as if customers will opt for a less expensive entry-level option instead of the originally planned executive commuter. What will most definitely happen is negative customer sentiment, which could hamper sales of bikes and scooters.

On a lighter note, an official says that more than retailing two-wheelers, dealerships will now have to focus on selling insurance to customers. “This is what it has boiled down to, a complete farce where there are no immediate answers,” he adds.

Reports have been doing the rounds that the Society of Indian Automobile Manufacturers (SIAM) has stepped into the picture and will attempt to take this forward with the authorities concerned. Not everyone is too confident about the outcome simply because there is no clarity on who will solve the problem. After all, the automotive industry now has a host of ministries to answer to, a list that includes Heavy Industries, Road Transport, Petroleum and Power. The recent addition to this list is Niti Aayog, now leading the way in electric mobility. So, who will step in to listen is the million dollar question.

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