HC order on compulsory 5-year vehicle insurance to jack up car prices
The Madras high court order making five-year ‘bumper-to-bumper’ motor insurance a necessity will hike car cost by at least Rs 50,000 and two-wheeler cost by about Rs 7,000.
This is a matter of concern for the auto industry which was looking to come out of the shadow of COVID pandemic.
“An entry-level car like Alto or Kwid will become dearer by Rs 50,000 and a mid-market SUV like Creta will cost Rs 2 lakh more,” Vinkesh Gulati, president of Federation of Automobile Dealers Associations (FADA), told The Times of India.
While the High Court verdict has to be implemented anyhow, there is a catch: the insurance pricing system is regulated by Insurance Regulatory Development Authority of India (IRDAI). Last year, IRDAI dissolved the provision that makes long-term insurance a must for new vehicle owners. Therefore, the IRDAI will now have to go back on its decision to implement the HC order.
JATO Dynamics president Ravi Bhatia told The Times of India: “For the dealer, selling the vehicle with five-year insurance would mean adding to the upfront expense of the customer. This, at a time when the insurance sector is adopting flexible pay options that allows customers to pay per month.”
MG Motor India president & CEO Rajeev Chabda said the auto industry needs a “holistic view” that balances “consumer interests, safety and overall cost of acquisition & ownership with environment & emission issues and job creation & local manufacturing”.
Yash Jain, a Twitter user, said that more than half the vehicles in India do not have ‘bumper-to-bumper’ car insurance. “About 40% of general insurance premium comes from motor insurance and in the motor sector, 41% comes from ‘bumper-to-bumper’ insurance,” Jain said.
Higher premium would mean vehicle sale volume may take a hit and number of claims could go up.
Also read: ‘Bumper-to-bumper’ vehicle insurance mandatory from September 1
But can such a comprehensive insurance be made mandatory? “The law requires that a vehicle owner buy only third-party insurance. Comprehensive cover is a voluntary contract between two parties. Someone can appeal, saying that they cannot be forced to purchase a cover,” said an insurance company official.
Another insurance company official said that the High Court order is the only way insurance can penetrate deeper and gain more acceptance.
The onus now is on the transport department to make sure the HC verdict is implemented in totality. “The insurance industry has not been asked to do anything and we will continue to sell policies. Even today, 99% new vehicles opt for comprehensive cover,” said another official.
It is important that vehicle owners come forward and understand the importance of ‘bumper-to-bumper’ car insurance for their own sake. On their part, dealers should equip their insurance departments to provide complete information about the benefits of comprehensive cover.
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On August 26, Justice Vaidyanathan of the Madras High Court gave the landmark judgment, saying, “This court directs that whenever a new vehicle is sold after September 1, it is mandatory for coverage of bumper-to-bumper insurance every year, in addition to covering the driver, passengers and owner of the vehicle, for a period of five years. Thereafter, the owner of the vehicle must be cautious in safeguarding the interest of driver, passengers, third parties and himself/ herself, so as to avoid unnecessary liability being foisted on the owner of the vehicle, as beyond five years, as on date there is no provision to extend the bumper-to-bumper policy, due to its non-availability.”
‘Bumper-to-bumper’ insurance gives complete coverage of the vehicle, without considering depreciation of its spare parts. Therefore, if a vehicle owner meets with an accident and have damages that need covering, the insurer will not deduct the depreciation value from the coverage.