New vehicle insurance rules - Cars and bikes are now less expensive
If you are planning to buy a new car, SUV, or a motorbike, you can expect the vehicle’s price to be lower than before. The price revision came into effect from August 1, 2020. This is because the IRDA (The Insurance Regulatory and Development Authority of India) recently passed a circular to withdraw the mandatory long-term vehicle insurance for new vehicles. The regulatory body has mandated the insurance companies in India to discontinue the long-term own damage cover that added extra cost to the vehicle’s showroom price.
The decision to issue long-term vehicle insurance was made in September 2018 after the honourable Supreme Court of India directed the insurers in India to offer a three-year policy for two-wheelers and five-year policy for four-wheelers. Following the Supreme Court’s order, the insurers started offering two insurance coverage types to the new vehicle buyers – One year of own damage cover and three years of third-party cover, and three years of OD and third-party insurance.
Some vehicle dealers mislead the car buyers into buying both - own damage and third-party long-term motor insurance policy even as the OD cover was not mandatory. The showrooms did not give the customers any other choice, and they pushed them to buy 3+3 years policy instead of giving the option to buy 3+1 policy.
Due to the misuse of the Supreme Court’s decision by vehicle dealers to raise the vehicle prices, the IRDA decided to roll back the decision of mandatory long-term OD insurance requirements, while the long-term third-party will continue.
Additionally, the insurance companies faced several problems in fixing the premium price as the premium for some long-term policies remain fixed for three to five years. Typically, the insurance companies decide the premium price based on the claim expectation, and they adjust the price during each renewal. However, when the mandatory long-term policy rule was in place, the insurers were having to bear the risk for three years as the premium price remained fixed for a longer period.
The mandatory long-term insurance policy added to the vehicle’s overall price, which also includes the registration charges and road tax. With the new rules coming into effect, apart from the car prices coming down, the cost car insurance policy insuring the vehicles will also reduce.
Earlier with the long-term insurance rule in place, the insurance buyers were forced to stay with the same insurance company until the end of the policy term. With the long-term policies withdrawn, if you are not happy with the insurer’s services, you can switch your policy to a new insurer after one year while you renew the policy.
If you are ready to buy a new car or a bike, it is advisable to purchase a comprehensive policy that includes an own damage cover for one year and the three-year compulsory third-party cover. The third-party insurance policy premium is uniform across all insurance companies as the IRDA fixes it. So, when you buy the policy, compare the prices of a comprehensive cover to get the best policy at the best price.