New Year's bonanza: Use discounts to enhance your insurance cover

Use money saved via premium reduction to buy add-on covers that will make your motor policy more comprehensive

Private insurance companies such as Bajaj Allianz General Insurance and ICICI Lombard General Insurance have reduced premium rates for the private car segment by 5-15 per cent. Several more may follow suit in the coming days. Insurers say they have reduced the premium due to the rolling out of the goods and services tax (GST) and improvement in overall efficiency. According to brokers, premiums were reduced because insurers are saving on costs after introduction of the motor insurance service providers (MISP) circular, which capped distribution commissions. Experts say that while the windfall is welcome, car owners should use the savings to buy add-on features that will result in cost saving for them in case of a mishap.

   

ICICI Lombard General Insurance started offering the reduced rates in December, while Bajaj Allianz General Insurance's new rates became applicable from January 1, 2018. According to Sanjeev Mantri, executive director, ICICI Lombard General Insurance, “Multiple factors have led to the reduction in premium for passenger vehicles. The first is the goods and services tax, where we now get input credit, while earlier under the VAT (value-added tax) regime there was no input credit and the tax was part of our costs. Also, we have been able to improve our overall operational efficiency in the last few years.” He adds that going digital has helped the company. ICICI Lombard General Insurance now issues 87 per cent of its policies through digital platforms. Similarly, 91 per cent of its motor surveys are done using tablet, mobile, mobile apps and video streaming. This, too, has helped the company streamline costs. Premiums of Hyundai i10 have reduced from Rs 17,000 to Rs 15,000, while for the Toyota Etios it has reduced from Rs 22,000 to 20,000 for a one-year-old vehicle.

 

According to brokers, the premium reduction has happened largely due to the MISP circular, which reduced the commission that insurers can pay to auto dealers. The Insurance and Regulatory Development Authority of India (Irdai) has capped the distribution fee that can be paid to auto dealers at 22.5 per cent for two-wheelers and at 19.5 per cent for four-wheelers and sports utility vehicles (SUVs). Earlier, insurance companies used to pay distribution fee in the range of 25-30 per cent across segments. This commission structure is applicable only on premium charged towards “own damage”. Premiums of comprehensive motor insurance policies have two components — third party and own damage. “After the insurance regulator fixed the commission structure, insurers have started saving money on distribution cost, and hence have passed on the benefits to policyholders,” says Rakesh Goyal, director, Probus Insurance Brokers Limited.  

Experts suggest that policyholders should buy add-on covers or riders with the money they save by way of premium reduction. Engine cover, zero depreciation cover, roadside assistance and towing are some of the add-on covers and features that policyholders are likely to find useful. “We have witnessed many cases where policyholders chose not to buy add-on covers and were at the receiving end when accidents or mishaps happened. One cover policyholders should surely buy is engine protector cover, which covers any repairs that are required to be done on engines,” says T L Arunachalam, director-global strategy and special projects, Bharat Reinsurance. Flooding is a major cause of engine damage. Most car insurance companies do not cover damages caused to a vehicle's engine. If you buy the zero depreciation cover, the entire cost is covered by the insurance company and policyholder don’t have to bear any expenses on damaged car parts.