The long term 2-wheeler insurance had a lot of issues and concerns. With its withdrawal, prices of vehicles should come down…
The Insurance Regulatory and Development Authority of India (IRDAI) had mandated three year insurance for new cars and five year insurance for two-wheelers following a Supreme Court ruling in September 2018.
Insurance comprises two parts – Third party coverage (covers damages to third party) and own damage (coverage against policyholder’s vehicle, theft, etc). The 2018 ruling offered two options to new vehicle buyers –
- 3/5 year policies covering both Third party and Own Damage for all the years.
- 3/5 year policies covering Own Damage for one year and Third party for all 3/5 years.
*3 years is for cars and 5 years is for two-wheelers
This jacked up the on road prices significantly and coupled with various other reasons, impacted automobile sales significantly.
However, sense has prevailed and after a careful analysis, IRDAI has withdrawn the long term insurance from the market. It must be noted that the first option that we have listed above has been taken off, whereas insurers may continue to offer third party insurance (along with 1 year own damage coverage) for 3/5 years.
The effective date will be 1st August 2020. This should bring the on-road prices of all two-wheelers (and cars) down.
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Reasons of Withdrawal
In its circular, IRDAI highlighted that actuarial pricing was a challenge for long term own damage cover. The steep price of long term insurance was a hindrance for many buyers. The policyholder was stuck with the same insurance despite deficiency in services. No Claim Bonus (NCB) was not uniform among all insurers and was a point of concern for policyholders.
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This step should lift the extremely damp buying sentiments in the automobile market since on road prices are expected to go down.