Bharat NCAP and its impact on car insurance. Will consumers see a lower premium?

India has witnessed the launch of its first-ever indigenous car crash safety test and evaluation program Bharat New Car Assessment Programme (Bharat NCAP or BNCAP). Slated to be enforced from October 1, 2023, this program makes India the fifth country in the world to have such a safety test and evaluation protocol after the US, China, Japan and South Korea. The Indian government hopes that this program will enhance the safety of cars in India, increase awareness about vehicular safety among consumers and heighten the export-worthiness of made-in-India cars.

Some automobile insurance companies provide insurance coverage to cars at lower premiums when the insured vehicle is equipped with various technology-aided safety devices, which mitigates the potential of theft or other damages. This has fuelled speculation that the cars that will score higher safety ratings under the new Bharat NCAP program may see insurance at a lower premium. Also, there are questions about how the Bharat NCAP is going to impact the car insurance industry, which is a major stakeholder of the industry ecosystem.

What auto industry experts believe

Among the auto industry experts, some are of the opinion that the Bharat NCAP brings an opportunity for insurance companies to introduce a preferential premium pricing system. Volkswagen India's former marketing head Avik Chattopadhyay said that the BNCAP will encourage the prospect of choosing a safer car over just a cheaper one. “I think the BNCAP programme will be a terrific opportunity for insurance companies to do preferential premium pricing for vehicles that get more stars...the more the stars the lower the premium. That will be a sure-shot way of encouraging the prospect to choose a safer vehicle over just a cheaper one. This is just like choosing a greener vehicle over a polluting one. It will be for the benefit of the consumer," he said.

Speaking about the impact of the BNCAP and its impact on the car insurance industry, Puneet Gupta, Director of S&P Global Mobility, echoed similar thoughts. He believes that car insurance companies can definitely use the new Bharat NCAP safety rating as a tool and charge more premiums to vehicles that are not registered under the program. This would force car manufacturers in India to shift towards rolling out safer vehicles in the long run, which will eventually help the Indian consumers, said Gupta. “Bharat NCAP is a step in the right direction. Now consumers will be able to differentiate the products and go for safer models," he added.

Anuraag Bharadwaj, Vice President and industry leader for automotive, India- Capgemini, believes that with BNCAP enforced, the reduction of risk occurrence in terms of accidents will result in actuarially low premium computation. Thus in the medium term, there would be some downward movement of insurance premiums, he said. “As vehicles are becoming safer, insurance companies have to think about the premium they charge for occupant life cover, and have to look at reducing premiums on occupant life cover as fatalities are going to be reduced," Bharadwaj added.

What insurance industry experts say

While the industry experts stated that the Bharat NCAP will help the cars in India to be safer, enhancing the overall safety of the consumers, the answer to the question of whether the new safety protocol will impact the car insurance premiums in favour of car owners, remains murky. Insurance industry leaders are not sure about car owners' own damage coverage premiums going down, but they are hopeful that third-party liability premiums may decrease because of the BNCAP. Nitin Deo, Chief Technical Officer of Zuno General Insurance, said that with the enhanced safety standard, the number of accidents, fatalities, and injury cases would decrease and that would result in relief in third-party premiums for the insured. “Number of accidents, fatality, injury cases per year has a direct impact on Third Party premium. With enhanced safety standards, such cases would decrease and lead to relief in third-party premiums for the insured," he added.

When asked the same, Future Generali India Insurance Company, another major player in the industry, said that it is too early to come to any conclusion about the impact of Bharat NCAP on the car insurance industry.

In a nutshell, motor vehicle insurance has three aspects to it: life cover for occupants, damages to the vehicle and third-party damages. Bharat NCAP will have an impact only on one factor which is the risk to occupants, while two other factors will remain unaffected. Hence, we may see only a marginal downward change in insurance premiums.