Search the Internet          Tips  Sites: Finance, Investment

Insurance: rude shock awaits car owners

Freny Patel

It will be a rude shock for private car owners. You might just have wished that you had taken advantage of the numerous summer offers of buying a new car and getting free motor insurance cover along with it.

Come July 1, motor insurance premium for all automobile owners will shoot up and, in some cities, hit the roof.

The worst hit will be motorists in Chennai, Ahmedabad, Mumbai and Madhya Pradesh. They will have to be prepared to dig deeper as under the new tariff policy, the hike in premium rates have risen by as much as 38 per cent to 47 per cent.

Automobile owners in Delhi, Pune, Bangalore, Hyderabad, Kolkata and Greater Mumbai will be luckier. In these cities, there will be a percentage rise of 3 per cent to 7 per cent. In other state capitals and the rest of India, the hike has been far more moderate, varying less than 1 per cent and, in some cases, even being negative.

A motorist of a Rs 380,000 Matiz with a cubic capacity of 796, registered and insured in Chennai, will have to shell out a premium of Rs 11,887 for the first year. This is 42.17 per cent more than what he would have otherwise paid under the existing tariff at Rs 8,361.

The same model but registered and insured in any of the four metros will also attract a premium of Rs 11,887, but the actual increase would be just 3.44 per cent.

This is because a motorist residing either in the four metros, Bangalore or Hyderabad, has in the past been paying a high premium of Rs 11,492 for the first year premium.

The Matiz will attract the same premium (Rs 11,553) in the other states, but here the increase will be just 0.52 per cent over what the motorist was paying under the existing tariff plan (Rs 11,492).

The way the Tariff Advisory Committee - the authority which decides on the motor insurance tariffs - has modified the tariffs arbitrarily, has raised a hue and cry among private motorists.

They have undeservedly been forced to pick up a large portion of the tab as the industry wishes to enhance collection of motor premium by Rs 6 billion to make good bad claims.

The hike in tariff has not been a level rise across the board. On the contrary, the increase varies from city to city, from car model to car model - based on the age-old method of cubic capacity.

The re-zoning and re-rating in terms of premium charges are not justified by statistics. The Ansari Committee, which was asked to make recommendations on the revision of motor premium, admitted in its report that there was inadequacy in obtaining statistics.

Yet, at the same time, the country continues to be arbitrarily divided into two zones. Zone A comprises the four metros as well as Ahmedabad, Bangalore, Hyderabad and Pune. Zone B comprises the other state capitals and the rest of the country.

Essentially, the TAC has made all motorists across the country pay more or less the same premium depending upon the car model and the number of years it has been in use.

While this is acceptable to a degree, the new tariffs are based solely on the cubic capacity of the car model, and not on the claim experience of the city or the driving and claim experience of the motorist.

As motor claim ratios are among the worst in the industry today, resulting in new players being choosy in writing motor policies, the TAC has allowed insurance companies to impose a 100 per cent loading on the premium in the case of adverse claims experience.

Should the claims experience continue to be bad in the following year as well, the authority has approved an additional 100 per cent loading in premium in the second year of renewal. However, no further loading will be permitted in the third year.

The good driver has not got off lightly either. He too has been penalised for no fault of his, except for the fact that the industry is in dire need for more funds to offset the poor claim ratio.

Vehicle owners will have to think twice and weigh the opportunity cost of putting in a claim, as previous discounts on the premium in the year of renewal will be wiped out and reduced to zero, should a motorist put in a claim.

The existing policy allows for the discount on premium payable to be built up to a maximum cap of 65 per cent by the fourth year. In the event of a claim, the discount on renewing the policy stands reduced to the previous year's level, and not completely down to zero.

The revised tariff allows for a maximum discount of 50 per cent in the fifth year. However, a claim made in any year wipes out all the discounts on renewing the motor policy.

Far from rewarding the good driver, he has been penalised. Clearly, the bias is against private car owners, even in the case of the hike in third party liability premium.

A Maruti owner ends up paying 47 per cent more premium from the present Rs 340 to the revised Rs 500 for third party liability. The percentage rise is linked to the cubic capacity of cars varying from 38 per cent to 76 per cent.

Further, taking into account the depreciation in the value of a car, TAC has introduced a concept of insured declared value, which specifies the percentage of depreciation for fixing the insured value of the car.

Obviously, as the car ages, the IDV decreases. However, the rise in premium payable also reduces till year five, but jumps up again from year six.

Powered by

ALSO READ:
The UTI Crisis
More Specials
Money