Industry

From September, new cars, two-wheelers to get longer duration third party insurance cover

Representational image

Representational image   | Photo Credit: K.K. Mustafah

Following a Supreme Court order, from September 1, the mandatory motor third party insurance cover for new cars and two-wheelers, that will be issued for longer duration as against for one year at present, will take effect.

Starting next month, the said insurance cover for new cars will be mandatorily offered for three years, while the cover for new two-wheelers will be for five years.

Following this move, vehicle owners will be paying more in one go, albeit for a longer duration, towards the third party cover. Based on the apex court order, the Insurance Regulatory and Development Authority of India (IRDAI) has issued a directive to general insurers dealing in motor insurance.

 

The July 20 Supreme Court order said: “We make it clear that the third party insurance cover for new cars should mandatorily be for a period of three years and for two-wheelers, it should mandatorily be for a period of five years. This may be taken and treated as a separate product. The decision should be implemented from 1st September, 2018 on the policies sold.”

Citing the order, the IRDAI circular said:In line with the above decision of the Supreme Court, all general insurers (barring the stand-alone health insurers and the specialised insurers) shall carry out the following in respect of motor third party insurance covers for new cars and new two-wheelers with effect from September 1, 2018.”

The insurance regulator said the premium has to be collected, for the entire term, (3 or 5 years) at the time of sale of insurance but would be recognised on a yearly basis. “In other words, it shall be recognised for each year as 1/n of total premium as Gross Written Premium during that year where ‘n’ is the term of the policy. Thus, the premium for the year shall only be recognised as income and the remaining premium shall be treated as 'Premium Deposit' or'Advance Premium'.”

The IRDAI said, as directed by the Supreme Court, the insurers should ensure that third party insurance cover is available to all proposers through online channels as well. “They shall also liaise with the police authorities to facilitate issuance and renewal of third party insurance cover and ensure its easy availability.”

The regulator wanted the insurers to advertise the introduction (including the mandatory nature) of long-term motor third party insurance as stipulated by the apex court.

Motor insurance has two components – third party liability and own damage. Regarding the own damage insurance cover, the Authority said that currently package policies or comprehensive covers are available in which both components are covered.

After the introduction of long term third party cover, an insured may be given the option of either long-term package cover both third party and own damage or a bundled cover with a three-year or five-year term (as applicable) for the third party component and a one-year term for the own damage.

Considering the immediate need to offer long term package covers, insurers may start issuing such policies effective September 1even while ensuring filing such products under the File and Use Guidelines before September 15, the IRDAI said.

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Printable version | Sep 21, 2020 7:48:22 PM | https://www.thehindu.com/business/Industry/from-september-new-cars-two-wheelers-to-get-longer-duration-third-party-insurance-cover/article24811046.ece

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