Multi-year insurance for cars, bikes may lead to 10-12% increase in premiums

Consumers may have to shell out atleast 10-12 percent more for their multi-year motor third party insurance for cars and bikes. Last week’s decision by the Supreme Court (SC) to have mandatory two-year third-party motor insurance for cars and five-year policies for bikes may lead to inflation-adjusted pricing for the products.

“If it is a multi-year product, apart from claims and the type of vehicle, inflation will also be a factor that will be considered,” said a senior official. While there is a relief from the annual premium increases by the regulator, the policyholder will have to pay a lumpsum amount during the vehicle purchase.

Currently, three-year products for bikes are available in the market. Here, the premium is locked for the period and is aimed at having a higher percent of two-wheelers insured.

Almost two-thirds of vehicles running on Indian roads do not have proper third-party covers for liabilities against injury/death during accidents. This means if a person dies from being hit by a car or bike, the owner of the vehicle has to bear the financial expenses.

While calculating third-party liability for motor vehicles, the regulator takes into account the number of claims that were filed in that category in the previous year. If the insurance policy for as long as five years, factors such as wages and inflation will also be taken into account.

This is because once the premium is paid at the time of sale, it cannot be changed midway. A senior distribution officer at a general insurance company said it will be a mixed impact for customers.

“The hassle of renewing the policy annually will be removed. But they may have to pay a higher sum of money for the product,” he added.

Passenger vehicles, especially bikes have a very low rate of insurance and the SC wants to push the penetration by asking insurers to offer longer duration products.

It is likely that the industry will meet the regulatory body to discuss the contours of the product and how it will be priced.