Tougher Motor Cover Rules may Push Up Vehicle Purchase Cost


Purchasing new vehicles could cost up to 10% more in the coming months as India’s insurance industry – on the back of an order by Madras High Court last week – is being forced to revamp policy designs and existing risk models of motor covers.

As per a Madras HC landmark judgement, vehicle owners now have to purchase mandatory ‘bumper to bumper’ cover, which means that along with the compulsory third-party insurance policies, consumers would also have to purchase motor own-damage insurance, as well as accident covers for co-passengers.

Insurance industry sources say the premium for new comprehensive motor package, which would be offered at dealerships, could be at least three times higher than that for the third-party cover. They said that the industry is in active dialogue with sector regulator IRDA to understand the specifics of the new rules as well as to understand compliance timelines.

Own Damage is an insurance cover that protects you against the loss and damage that occurred to your own vehicle like fire, theft, etc. Third-party covers are those which cover liability on damage to other vehicles in the event of an accident. Currently, only third-party covers are mandatory during the time of vehicle purchase, while OD with accident riders have largely been a complimentary product.

According to the motor industry, while correct in intent, the timing of the judgement is questionable as it can impact demand for both two-wheelers and cars, especially in the upcoming crucial festive season months.

The new rule also poses several challenges for insurers as currently insurance companies don’t offer five-year motor OD policies. Additionally, the industry also has to standardise the issuance of personal accident covers for co-passengers.

Bumper to bumper insurance is a comprehensive insurance policy that provides a 100% coverage of damages to the fibre, metal, and rubber parts of your car.

According to Royal Sundaram, a regular car insurance policy does not cover the wear and tear of a car or the usual depreciation that the car is likely to suffer from the passage of time. So, if a car undergoes any damage and if it has insurance coverage, the insurance company always deducts a certain amount as wear and tear costs before settling the insurance claims. With the Zero-Depreciation cover, the insurance company will pay for the entire expenditure incurred while replacing any damaged part of the car. Since those who own a used car are likely to have incurred more wear and tear damages, it is highly recommended for them to buy a Zero Depreciation add-on to ensure that they do not have to pay any money from their pocket if their car meets with an accident.

The court said after five years, the owner of the vehicle must be cautious in safeguarding the interest of driver, passengers, third parties and himself/ herself, so as to avoid unnecessary liability being foisted on the owner of the vehicle. Beyond five years, as on date, there is no provision to extend the bumper to bumper policy, due to its non-availability, Justice S Vaidyanathan said in a recent order.

The judge was allowing a writ petition from the New India Assurance Company Limited in Avalpoondurai, challenging the orders dated December 7, 2019 of the Motor Accidents Claims Tribunal, Special District Court in Erode.

The insurance company pointed out that the insurance policy in question was only an “Act Policy”, which would cover only the risk that might be confronted by a third party to the vehicle and not its occupants. The coverage for an occupant of the vehicle could be extended upon payment of additional premium by the owner of the car, the insurance company contended.

The judge said it is sad that when a vehicle is sold, the buyer is not clearly informed about the terms of policy and its importance. Similarly, at the time of buying the vehicle, the buyer is also not interested in understanding the terms and conditions of the policy, as he/ she is more concerned about the vehicle’s performance.


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