Converting your vehicle to CNG or electric? Don’t forget to inform the insurer, lest claims be denied

Inform your insurers when you convert your vehicle into CNG or electric

Come winter, air quality has been worsening, leading many vehicles off New Delhi roads.

In November 2023, the banning of all BS3 and BS4 vehicles except compressed natural gas (CNG) and electric vehicles (EVs) in the National Capital Region (NCR) came as a blow to consumers and automakers. Those who cannot afford new vehicles are rushing to conversion centres, where an external CNG or EV kit can be installed in the existing vehicle.

If you are considering such an option, don’t forget the impact this could have on your vehicle insurance cover. No vehicle can ply on Indian roads without a valid insurance policy.

Also read: Electric Vehicle Insurance: Premiums are high, but insurers are evolving new offerings

Insurance policy change mandatory

Insurance companies agree that modified two-wheelers or cars can be insured. However, the insurance company needs to be informed when changes are made to a vehicle.

“In the event that an insured fails to notify the insurance company and has suffered any accident, the claim can be repudiated by the company,” says Parthanil Ghosh, President - Retail Business, HDFC ERGO General Insurance.

Even if you make changes to the fuel type of the vehicle during a policy year, there is no problem. The insurance company can update your policy to reflect the new vehicle status.

This is essential because, with a change in the source of power for the car or two-wheeler, many factors change.

Aditya Kumar, Head – Motor Underwriting, Digit General Insurance, explains, “A car insurance premium is decided based on different factors, including the fuel type and the insured declared value (IDV) of the vehicle. When a car is modified or changed from the form that was provided by the original equipment manufacturer (OEM), the type of risk that was initially assumed by the insurer changes.”

Failing to disclose modifications may lead to issues during the claims process. Insurance companies have faced such situations.

Also Read: Delhi air back in 'severe' category: Anand Vihar 'hazardous', Greater Noida 'most polluted'

“While we do not have many cases of individuals currently requesting conversion to an electric vehicle, there have been cases where claims are registered on policies where the car was converted to CNG and we, as an insurer, were not informed,” says Raghvendra Rao, Chief Distribution Officer at Future Generali Insurance Solutions.

Also read: General insurers see growth in EV insurance demand, but safety concerns could push up premiums

Government-approved kits

Insurance companies do provide insurance for converted or modified vehicles. However, the same needs to be approved by their respective regional transport offices (RTOs). "One should also ensure only the authorised kit is used to make changes to the vehicle. The insurer may deny insurance if any unauthorised modifications are made to the vehicle," says Kumar.

Vehicle conversions are governed by the Motor Vehicles Act, and one needs to follow these rules. Additionally, all the rules and regulations laid out by the local RTO need to be adhered to.

“Insurers may deny a policy if the vehicle changes are not approved by the RTO. One should also make sure that the kit used to convert the vehicle is approved by the concerned approval authority,” says Kumar.

Two options for insurance

Upon authorisation and retrofitting of the CNG or EV kit by the approved service provider, you would have to either cancel the existing vehicle insurance policy or seek a new one.

Rao suggests, “The cost of the vehicle will change upon conversion from one fuel type to another. If you are converting a vehicle during the middle of the year, you need to get an amended policy or cancel the existing policy and get a refund of the balance period premium.”

Insurance companies say it is better to get a fresh policy issued rather than alter an existing one, as conversion could result in significant changes to a vehicle.

"When a vehicle is converted into an electric vehicle, it typically undergoes several underwriting changes to evaluate the risk and coverage requirements. These changes encompass technical assessments to understand the electric vehicle's specifications, including battery type and condition," as per Ghosh.

Especially if you are converting the vehicle to an electric format, then hefty changes are made.

“Engine is typically one of the most expensive parts of the vehicle. Making changes to the same and converting it to an EV vehicle can impact the ongoing insurance coverage,” says Kumar.

High battery cost raises premium

Conversion would mean high battery costs, as a result of which the premium for a converted vehicle would increase. “It costs around Rs 5-7 lakh to convert an existing ICE vehicle to an electric variant. This would include at least Rs 3-4 lakh for the battery of the electric vehicle,” says Rao.

The premium would depend on the battery that one has selected and its capacity. The vehicle maker, model, experience with floods, special repair costs, and usage patterns determine the premium.

“Remember, the repair costs related to electric vehicles are typically higher, especially in cases where the battery is affected or damaged. Not having an EV insurance policy may lead to huge out-of-pocket expenses,” says Kumar.

However, the subsidies that are currently offered, tax benefits for EVs, and some discounts for environmentally friendly measures could be your saviour.

“Some insurance providers may even offer discounts or incentives to promote eco-friendly choices,” adds Ghosh.

Third-party premium varies

Within premiums, there are two varied covers -- one is for damage to your own vehicle (own damage), and another is for damage to another external vehicle on the road that your vehicle can cause (third-party).

“Motor third-party coverage premiums for electric vehicles are ~15 percent lower than for corresponding ICE engines. Thus, the average premiums are lower by at least 10-12 percent,” says Ghosh.

While third-party cover premiums would be lower for fresh vehicles, for vehicles converted from internal combustion engines (ICE) to EVs, the savings may not be much.

“Individuals may have to pay a higher premium for their ICE vehicle that is converted to an EV,” says Kumar.

Impact on warranty

Another aspect to consider is that vehicles often have warranty periods of up to four to five years for special parts. However, these warranties offered with the original vehicle may be lost upon conversion.

“If the vehicle is within the warranty period, then it would be advisable to check with the original manufacturer if there will be any changes to the warranty applicable clause,” says Kumar.

An extended warranty, if taken on the original vehicle, would be wasted. But you can consider an extended warranty for electric batteries if you are purchasing them.

“One add-on cover that would be required for such a converted vehicle would be an extended warranty for the battery,” says Rao.

Such additional covers for securing batteries are gradually being launched by insurers.