Regulator proposes changes to own-damage motor insurance

The IRDAI has proposed changes to regulations concerning the structure of motor own-damage insurance policies that can make the plans simpler.

An exposure draft issued by the IRDAI proposes simplifying the calculation of depreciation and sum insured, rationalising and renaming the general regulations as Motor General Regulations (MGRs) and standardising the no-claim bonus grid for long-term policies. All pricing related general regulations have been deleted.

Proposed changes include:

Telematics

The IRDAI recommends adoption of telematics for motor insurance with a central repository of telematics data to be created. Insurance Information Bureau of India (IIBI) which acts as the data repository for insurance companies will manage the data and its protection.

Changes in sum insured for motor insurance

The IRDAI is working on making depreciation and sum insured calculation simpler. "Vehicle age-based depreciation has been recommended for partial losses to make it completely objective and remove all ambiguity and subjectivity in claim settlement."

Until now the initial declared value was equivalent to the sum insured and was calculated based on the ex-showroom price of the vehicle which doesn’t include the cost of registration and taxes (on-road price).  Also, depreciation is calculated only up to five years. Currently, depreciation ranges from 5% for vehicles up to six months old to 50% for vehicles that are five years old.

The proposed change would calculate depreciation by keeping the on-road price of a new vehicle as the listed price for up to three years. For a vehicle aged 3-7 years, the sum insured shall be as per a suggested new depreciation table with rates ranging at 40-60%. Beyond the 7th year, the sum insured shall be arrived at a mutually agreed value between the insured and the insurer. 

Standardised grid for non-claim bonus

The IRDAI proposes to standardise no-claim bonus (NCB) for long-term motor policies. At present, vehicle owners with long-term motor insurance policies lose out on the annual NCB. For an annual cover, the NCB on renewal ranges from 20-50% and if it is a long term policy, the policyholder is eligible for the NCB only after the policy tenure expires.

According to the draft proposal, IRDAI has clarified that the entitlement of NCB "will be applicable for the substituted vehicle subject to the provision that the substituted vehicle on which the entitled NCB is to be applied is of the same class (as per these Regulations) as the vehicle on which the NCB has been earned and subject to submission of evidence of sale of the vehicle on which the NCB was earned."

Vehicle registration

The IRDAI has also recommended cancellation of the vehicle registration certificate (RC) in cases of total loss and theft claims. Insurers are advised to settle claims only after the insured surrenders the cancelled certificate.

Source: Asia Insurance Review