You might be able to buy a long-term motor insurance policy, as the Insurance Regulatory and Development Authority of India IRDAI has proposed to allow all general insurers to offer long-term motor insurance policies in order to give more choice to policyholders. The regulator has proposed 3 years of policy in respect of private cars and 5 years in respect of two-wheelers co-terminus with Third Party TP Liability cover.
A comprehensive motor insurance policy consists of two parts - own damage and third-party insurance. The damage part covers the car from damages caused by accidents, while third party insurance covers damages caused by a third party.
Suresh Agarwal, Managing Director of Kotak Mahindra General Insurance, said it is a good move to develop longer-term products, as it leads to longer-term engagement with customers and reduces the hassle at both ends.
According to the IRDAI s circular, pricing of long-term policies is based on actuarial principles considering all the relevant aspects of the rating including claims experience, lower anti-selection, reduced policy administration and acquisition costs, long-term discount, expected NCB level by the end of the policy period and applicable government taxes, etc. The cost efficiencies of policy administration may be reflected in the pricing of add-on and optional covers. The depreciation rate to apply on the IDV agreed will not exceed 10% per annum during the policy period.
In August 2020, IRDAI withdrew the long-term motor insurance package policies. The long-term policy was introduced in September 2018 and offered no premium changes and no inspection for three years. IRDAI decided to withdraw this plan later. According to the circular of the IRDAI, insurers had problems with actuarial pricing for the long-term damage cover. The affordability of vehicle owners was another reason.
The Finance Ministry has invited comments from stakeholders on the proposed changes to the Insurance Act, 1938 and the Insurance Regulatory and Development Authority Act, 1999. There are proposals that no insurers will be allowed to commence insurance business unless they have a minimum paid-up equity capital as specified by regulations. The minimum capital is to be specified by the regulators based on the size and scale of operations, class or sub-class of insurance business and the category or type of insurer. A general, life or a standalone health insurance business is required to have a paid-up capital of 100 crore and a reinsurance business is required to have a paid-up capital of Rs 200 crore.
Ankur Nijhawan, CEO, AXA France Vie - India Reinsurance Branch, says the Finance Ministry changes to the Insurance Act will improve penetration of insurance companies, even for those that are small in size and scale, like the mono and micro insurers. The country has a large part of the uninsured population, which is a liberal move. The concept of captive insurer has been introduced, which will aid many companies that are currently self-managing their risks. This move will not only help insurers improve their risk management capabilities, but it will also increase insurance bucket premiums, create job opportunities, and drive overall growth of the insurance sector. Nijhawan says that insurance is currently sold as a risk transfer instrument, but actually it is a service. As per the proposed changes, insurance companies can offer other services bundled with their products. There are also many other countries where life and health insurance are sold together. There is a company accountable for the time there is only one insurance service provider involved.