Motor insurance set to become dearer

car

Chennai: Come January 2009, you may have to pay more for your car premium, though you will get wider coverage for the extra money you shell out.

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This follows the Insurance Regulatory and Development Authority (IRDA) allowing insurance companies to word the terms and conditions on the add-on covers and deductibles on their motor (own-damage) policies.

“Premiums of motor insurance are expected to harden in the next two months,” says Rahul Agarwal, CEO, Optima Insurance Brokers, an insurance broking company. (IRDA has allowed insurers to offer the revised policies from January.)

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IRDA move

Motor premiums have come down by nearly 40 per cent over last year, after the IRDA allowed insurance companies the freedom to price their policies. (Earlier, the prices were fixed by the regulator). As the premiums crashed, almost all the insurance companies are making losses on motor portfolio.

Now, insurance companies have been given the freedom to offer more features. For example, a policy may undertake to pay the full replacement value of a car component. But, the features will come with a cost.

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“Insurance companies will look at revising premium upwards,” says Agarwal.

Agarwal expects motor premiums to rise in the next two months.

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Today, the premium charged by the insurance companies are not in line with the risk insured, thanks to the competition unleashed by de-tariffing.

“At current premium levels, a majority of motor insurance is uneconomical,” says Vijay Kumar, Head — Motor Insurance, Bajaj Allianz General Insurance.

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However, now insurers can provide value-added features to the policies and charge more premium, he says. Accordingly, the cost of insurance will rise.

V. Ramasaamy, Chairman and Managing Director, National Insurance, also feels that premiums are likely to go up next year depending upon the loss experience of each insurer.

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The relaxation in terms and conditions, wording, clauses will give a wider scope for insurance companies to provide good policy for covering good risk features, he says.

Vehicle sales down

The opportunity to design more feature-rich policies and earn more premium comes at a stage when the motor insurance business in general has been facing a slowdown, thanks to the fall in sales of automobiles. Since sales of all the three major segments — trucks, cars and two-wheelers — are lower this year, premium income from new vehicles are also down. “As such, all insurance companies are having to fight for the ‘renewal’ pie,” says Kumar.

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“The slowdown in the auto sector will affect the insurance companies as there will be fewer vehicles on the road,” says N. Eswaranatarajan, Head — Motor Insurance, ICICI Lombard.

New vehicles constitute roughly 25 per cent of the total motor insurance.

The gross underwritten motor premium grew 25 per cent to Rs 3,624 crore during the first quarter during 2008-09 compared with the 21 per cent rise to Rs 2894.5 crore for the same period the previous year.

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However, “the second two quarters of the current year will be tough,” says Gopala Rathnam, Managing Director, Cholamandalam MS General Insurance Company. Hence, the freedom to word terms and conditions and offer value-adding features is a welcome step today.

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