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As on: Feb 20, 2019 11:29 AM
Insurance regulator IRDAI makes long-term insurance for new cars, two-wheelers mandatory
30-Aug-18   09:58 Hrs IST

Following a Supreme Court order, the Insurance Regulatory and Development Authority of India (Irdai) has asked all the general insurers to offer long-term mandatory third-party insurance cover with effect from September 1.

Accordingly, the third-party insurance cover for new cars will be for three years, while the cover for new two-wheelers will be for five years.

Officials in the insurance industry said that after this order they will start selling a five-year comprehensive cover for two-wheelers and three-year comprehensive cover for four-wheelers. A comprehensive cover includes third-party and own damage cover. While Irdai decides the premium rates for third-party cover, premiums for own damage cover is decided by the insurers.

The Supreme Court on July 20 stated that, "We make it clear that the third-party insurance cover for new cars should mandatorily be for a period of three years and for two-wheelers, it should mandatorily be for a period of five years. This may be taken and treated as a separate product. The decision should be implemented from 1st September, 2018 on the policies sold."

Rakesh Jain, ED & CEO of Reliance General Insurance, said: "This is a positive move towards increasing the penetration of insurance in India. A lot of policyholders otherwise forget to renew or find it difficult to retain insurance afterwards. For the own-damaged part, it is too early to comment. The premium needs to be worked out taking into consideration inflation on labour and spare parts over the future policy period. Industry needs to gather more data points and decide on the pricing approach."

Irdai, in its circular, stated: "The premium has to be collected for the entire term (three years or five years as the case may be) at the time of sale of insurance but would be recognized on a yearly basis. Thus, the premium for the year shall only be recognised as income and the remaining premium shall be treated as 'Premium Deposit' or 'Advance Premium'."

The three-year third-party insurance will cost Rs 5,286 for cars with engine capacity of less than 1,000cc, Rs 9,534 for cars with engine capacity from 1,000cc to 1,500cc and Rs 24,305 for cars with engine capacity of 1,500cc and above.

In case of two-wheelers, the five year-third party insurance will cost Rs 1,045 for vehicles with engine capacity below 75cc, Rs 3,285 for engine capacity between 75cc and 150cc, Rs 5,453 for 150cc to 350cc and Rs 13,034 for vehicles with engine capacity exceeding 350cc.

Senior officials in the industry said that such long-term insurance policies will help insurance industry and there might be benefits for customers in premiums.

Insurance Regulatory and Development Authority of India (IRDAI) was directed to implement the decision on policies sold from September 1, 2018.

IRDAI further said that after the introduction of long-term Motor TP Insurance, an insured should be given two options - long-term package cover offering both Motor TP insurance and own damage insurance for three years or five years as the case may be or a bundled cover with a 3/5 year term for the TP component and a one-year term for the own damage.