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As on: Jan 27, 2021 03:41 AM
Insurance regulator IRDAI withdraws long-term package covers in motor sector over affordability
10-Jun-20   09:46 Hrs IST

The Insurance regulator on Tuesday withdrew a circular, which asked general insurance companies to provide long-term package covers in the motor segment, offering third-party and own-damage insurance for three and five years to new two wheelers and four wheelers, with effect from August 1, 2020 on grounds that it is creating issues for insurers and also making it unaffordable for some section of vehicle owners.

The Insurance Regulatory and Development Authority (IRDAI) after reviewing the performance of long term package covers and following concerns relating to its implementation since its introduction, decided to withdraw these covers.

In 2018, the regulator had asked non-life insurers to offer long-term package covers for new four wheelers and five-year third-party covers for two wheelers. It had also asked the insurers to give two options to policyholders, the first one being: a long term package cover that entails both third party and own damage insurance for three and five years, as the case may be. The second one was, a bundled cover which will offer three year and five year third party insurance and a one-year own damage insurance. With the withdrawal of the earlier circular, only the bundled cover, offering three- and five-year third-party policies and one year own damage policies will be in force.

According to the regulator (IRDAI), these long term covers were posing a pricing challenge on the insurers especially in the own damage segment. The package products, offering both motor third party and own damage covers for three and five years as the case may be, were making it unaffordable to a large section of vehicle owners.

Further, they enhanced the possibility of forced selling due to financial interest. Also, policyholders who may not be happy with the services of particular company had very limited options and were burdened with a long term product which offered no flexibility. Moreover, no claim bonus structure in such products is not uniform among the insurance companies who were offering which might lead to confusion and dissatisfaction amongst policyholders.

The apex court had directed insurers to offer long term motor third party covers for vehicles plying on the road and had also made it mandatory. While third party cover is mandatory and regulated by the IRDAI, the own damage cover is voluntary and priced by the insurance companies.