The proposal by the Insurance and Regulatory Development Authority (Irda) to include paint material in list of items which have depreciation rates, for motor insurance, will help in unifying the practice of applying depreciation across insurers and may also lead to lower premium for customers, say industry officials.
Currently insurance companies were following different practices with regard to application of depreciation on painting across the country.
In the draft guidelines, issued on October 17, Irda said that paint will be included in the category of 'rubber, nylon/plastic parts, tyres and tubes, batteries and air bags' which presently attract 50 per cent depreciation.
The Regulator added that since paint material is polymer based and hence the depreciation applicable to plastic parts can be applied for it. Therefore, it has been proposed that depreciation rate of 50 per cent for painting charges, would be applied on the material cost which shall be 35 per cent of total painting charges or the actual, whichever is lower. Irda said that the net effect would be the maximum depreciation rate of 17.5 per cent being applied on the total painting charges.
Irda has given insurers time till November 9 to respond to the draft proposals.
According to Vijay Kumar, President – Motor Insurance, Bajaj Allianz General Insurance, painting cost comprises about 55 per cent of the claim payout, in case of repair of a car, which inflates the claim cost since car owners generally ask for painting the entire car, even in case of a small dent.
“Although sharing the depreciation cost would provide significant benefit to the customer, it will also help in bringing down car insurance premiums in the future. As the customer will be sharing the additional cost with the insurer, it may result in the benefit to the policyholder in the form of a lower premium provided the painting charges do not increase in the near future,'' Kumar said.
Ramesh Ramani, Senior Vice President, Consumer Lines, Tata AIG General Insurance said that general insurance companies had been made a representation to Irda about the need to recognise the depreciation aspect and also to have a uniform practice across the country. “The General Insurance Council held meetings with Society of Indian Automobile Manufacturers (SIAM) and Federation of Automobile Dealers Association (FADA) on the subject and together they have come to a consensus on application of depreciation on painting material,” Ramani said.