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Should Insurers pass benefits to policyholders in Two and Four Wheeler Insurance

Strap: Benefits of porting the policy should be available for vehicle insurance just like health insurance.

A recent introduction of the long-term policy for two-wheeler and four-wheelers have still left many questions unanswered by the regulators and from the insurance industry. Few queries that have come in the mind of policyholders is why there is no option of porting the policy like health insurance? Why benefits are not passed to policyholders if insurers get premium money for three or five years for their auto insurance? What can policyholders do if they have a bad claim experience?

All such questions arise as in the non-life insurance, auto insurance (third party+own damage) continues to be the largest segment with a share of around 40%. In the last financial year, motor insurance saw gross direct premium income (GDPI) of around Rs 50,250 crore. If policyholders are paying the upfront premium for three and five years, why are they not getting the benefits? Insurance Regulatory and Development Authority of India (IRDAI) in its circular had mandated insurers to provide long-term insurance for new vehicle insurance. Insurance regulator had asked insurers to provide third party insurance cover of three years for four wheelers and five years for two-wheeled vehicles.

Rakesh Goyal, Director at Probus Insurance says, “If investment income of policyholders funds and shareholders funds is Rs 16,565 and Rs 5,190 respectively for the financial year 2016-17 for the non-life insurance industry. And motor being one of the top segments in the industry, why insurers are not passing the benefits to the policyholders. I think at least 20% and 15% of the benefits should be passed to policyholders of two-wheeler and four-wheeler policy.” Ideally, if premiums are paid for three or five years, insurers will earn money on that investments and they should pass certain benefits to the policyholders for their vehicle insurance.

In the financial year, 2016-17, the yield on investments for the non- life insurance industry was at 13%, it could have come down in the last few years. But if insurers earn around 10%, they should give some benefits to the policyholders in motor insurance. Another major issue revolving around long-term motor insurance policies is lack of porting option to the policyholders. I suppose, a policyholder buys a two-wheeler policy from an insurance company and claims arises within six months, but due to some reasons his claims experience is not positive, he will repent buying the policy from that insurers.

Non-life insurance policies are typically for one year, but in order to bring in more ease and people continue to have their motor policy, regulators had allowed long-term two wheeler policy. But, many people don’t get satisfied with their insurers and they should give an option to policyholders to change the insurers for their auto insurance. “If there is an option given to policyholders in health insurance, why it is not available for long-term motor insurance policies. Having a bad claim experience will be painful monetarily as well as mentally,” added Goyal.

In the current situation, policyholders will have to buy long third party insurance cover, but it is advisable to buy own damage (OD) for only one year. These new regulations have created even more confusion in the mind of policyholders and some clarity should be announced by the regulators in this regard.

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