Here’s how your insurance policy will look like in 2020

If you are a non-smoker who never jumps traffic signals and is into regular exercising, 2020 will be a good year for you as far as insurance premiums are concerned. With the Insurance Regulatory and Development Authority of India (IRDAI) bringing in a series of changes in the product structures, there will be new policy designs starting next year.

While a series of these regulations for motor and health insurance are currently in the draft stage, they will be finalised in the next two to three months. Here is a look at five ways in which your insurance policy will be transformed in 2020.

Lower depreciation for motor-own damage segment and driving-based cover

At present, the moment you purchase a car/bike and drive it out of the showroom, depreciation kicks in. This essentially means that the value of the vehicle starts decreasing. Hence, when it comes to the motor-own damage cover, only a portion of the actual price of a vehicle destroyed in an accident is paid as the claim.

IRDAI has now proposed that in case of private cars, there will be no depreciation for the first three years. So, the sum-insured will be the listed price of the vehicle. Between the third and the fourth year, a depreciation of 40 percent will be applicable. This will progressively increase to 60 percent between the sixth and the seventh year.

For two-wheelers, the sum-insured may be 95 percent of the vehicle’s listed price up to six months of the purchase. This will gradually go down to 90 percent till the bike is one-year-old and, finally, 40 percent once it is seven years old.

The idea here is to encourage people to take own damage covers for their vehicles. This cover protects the vehicle from physical damages and is an optional policy.

In a related proposal, the government and the IRDAI have set up a working group to look at linking insurance premium with traffic violations.

IRDAI has said that it is perceived that linking insurance premiums to traffic violations committed by an individual could reduce road accidents and change driver behaviour.

Quicker settlement of insurance claims

Soon, motor insurance claims of up to Rs 75,000 will not require any assessment of losses by a surveyor. This means that motor insurance claims will be quickly settled since there will be no requirement to appoint a surveyor for claims up to a certain limit.

A draft proposal by IRDAI has talked about enhancing loss limits for appointment of surveyors to above Rs 75,000 in cases pertaining to motor insurance and to Rs 1,50,000 for all others.

At present, claims above Rs 50,000 for motor insurance and Rs 1 lakh for others qualify for the services of insurance surveyors and loss assessors.

When surveyors are appointed to assess a claim, they get 30 days to review the filed claim and submit the report. This delays the claim processing since any settlement will be made by an insurer only after the report is reviewed.

Flexible health and fitness benefits

Standard health insurance products could now offer a 5 percent increase in the cover for each claim-free policy period. The IRDAI has proposed that the sum insured under a standard policy can be raised every year, provided the policy is continuously renewed without a break.

Here, the sum insured (excluding CB) shall be increased by 5 percent in respect of each claim-free policy period (where no claims are reported), provided the policy is continuously renewed without a break, subject to a maximum of 50 percent of the sum insured (excluding CB accrued) under the current policy period.

In another related regulation, the IRDAI has proposed to allow fitness related discounts. The insurance regulator has floated a draft proposal that will allow insurers to give premium discounts in health insurance for those living a fit lifestyle.

You may also get a higher sum insured compared to others if you maintain an active fitness regime. Currently, health premiums are based on the claims experience of the previous year for that specific age group. Those with a history of medical ailments are charged higher.

Flexibility in life insurance products

Life insurers will be able to offer flexible policy tenures for certain products. The IRDAI also said insurers could design term, credit life and micro-insurance products that have a range of policy tenures to choose from. The last date to switch to this new regime is January 31, 2020.

For non-linked insurance products, the revival period has been extended to five years from the current two years. Here, non-linked policies to acquire guaranteed surrender value after two years.

In unit-linked insurance products, after payment of premiums for the first five completed policy years, the policyholder may be given an option to decrease the premium by a maximum of 50 percent. Once the premiums are reduced, they cannot be increased subsequently.

Standardised exclusions in health insurance

As part of its regulations on standardising exclusions in health insurance, IRDAI listed out several instances where a health cover cannot be denied. This includes mental health, puberty and menopause-related disorders as well as genetic disorders.

The IRDAI has also gone deeper and said that even if the use of a drug, stimulants or anti-depressant impact intellectual facilities of an individual, they are entitled to get covered.

While this will lead to price increases in 2020, new types of products covering these ailments will be part of the health insurance portfolio.

Will prices go up?

Across the product segments, the changes in regulations will mean that policy premiums may rise by 10-15 percent. An increase in coverage means that the risks incurred by an insurance company for possible future claims is higher. Hence the premiums will go up.

Segments like motor insurance already see an annual increase in the third-party rates as also is the case with group health products.

Goods and services tax (GST) at 18 percent on insurance premium has already been a matter of concern for the industry. IRDAI has sought that the GST be reduced to 5 percent. Once this is implemented, insurance premiums will be reduced.