IRDAI withdraws long-term vehicle insurance: What it means for customers
In a relief for new buyers of cars and two-wheelers, the Insurance Regulatory and Development Authority of India (IRDAI) has decided to withdraw long-term third party vehicle insurance cover from August 1. The long-term package cover offering both Motor Third Party Insurance and Own Damage (OD) Insurance was introduced from September 2018.
The withdrawal means that new vehicle buyers will not be given the option to pick long-term motor insurance from August 1. Earlier, customers were offered choice by insurers to pick OD plans, that offered coverage against theft, accidents and natural catastrophe.
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The IRDAI said the decision to withdraw the policy was taken after concerns were raised over the implementation of long-term insurance cover package. The regulator issued a circular saying that the actuarial pricing has been a challenge for insurers for long-term own damage cover. It also said that distribution of package policies has its challenges due to affordability factors for a large section of vehicle owners.
It also noted that the possibility of forced selling due to financial interest/being linked to loans is high and in case of deficiency in services, policyholders would be saddled with a long-term product with no flexibility to change options. Besides, the no claim bonus (NCB) structure is not uniform among insurers and this could lead to confusion and dissatisfaction amongst the policyholders.
In 2018, the Supreme Court had ordered long-term policies of five years for two-wheelers and three years for four-wheelers would be mandatory to ensure vehicles running on Indian roads have valid insurance covers. Following the order, the IRDAI had directed all general insurers to offer only three-year Motor Third Party insurance policies for new cars and five year Motor Third Party insurance policies for new two-wheelers with effect from September 1, 2018.
With the introduction of the-long term covers, general insurers were asked to provide two options to choose from.
They were asked to either offer 'long term package offering both Motor Third Party Insurance and Own Damage Insurance' for three years or five years as the case may be' or 'a bundled cover with a three-year/five-year for third party component and a one-year term for the own damage'.