Motor insurance – detariffing

The tariff regime is being dismantled by IRDA, the Insurance regulator. Since the 1st of January 2007, General Insurance companies are free to set differentiated premiums for most of their products. They will be able to charge different premiums to different consumers, based on their own business analysis and estimation of the consumer’s risk profile.

Motor insurance is the single largest business line for general insurance companies, and is also the fastest growing. Motor insurance covers the vehicle and the vehicle owners’ liability towards third parties (or accident victims), IRDA has allowed insurers to marginally increases the rates for third party insurance — an unprofitable cover. At the same time, it has freed pricing on motor vehicle insurance.

Advantage customer

In the changed scenario, insurance companies will arrive at premiums based on their assessment of risk on a case-to-case basis Insurance companies are not allowed to vary the scope of cover with respect to the products on offer, this ensure a continued consistency in coverage given to the insured. Combined with an appropriate risk premium, the customers with a good track record will be the biggest gainers.

To retain customers in a competitive scenario, insurers will focus on customer service as a key differentiator.

Customer with a good risk pro-file would enjoy lower premiums. A person who has invested in safety features, maintains the vehicles well, has a favorable claim profile etc would stand to benefit.

The brand and the model of car will decide the insurance premium that its owner has to pay. There will be factors that work on a portfolio level which are related to the vehicle model (serviceability, ease in repairs, availability of spare parts etc) and location. Models from companies with lower reach and spare parts with high cost will attract higher premiums.

Others factors like the date of purchase, number of accidents, whether or not it is a driver-driven car will also be among the factors that determine the premium.

The cost of third party compulsory insurance cover is set to go up by 150 %. This insurance, which will now be through a common pool of insurers, will mostly affect commercial vehicles since most private vehicle owners prefer a comprehensive cover.

However, the customer should realize that the best rates are not necessarily the lowest rates. In a fully relaxed tariff control by 2008 where low rate may be counter acted by a more restrictive coverage. It becomes imperative that the insurance contract is read and understood fully before being entered into. To improve your cover, it becomes paramount that you understand the product that you are purchasing very well.

Lastly, using the services of a broker may benefit customers. Insurance brokers will play a crucial role They will have knowledge of products of the insurances companies as also the profile of the insured. They can get the best deal from the insurance companies for the insured. They would also be aware of all the products available in the market and would be able to guide the customer appropriately.