If you want your motor insurance payout to reduce by 50-60 percent, try bargaining with your insurer, a senior industry official has said.
"India's non-life insurers are more like a roadside vegetable vendor and not an organised corporate when it comes to selling motor insurance policies," a senior official of a general insurance company told IANS requesting anonymity about his name and company.
"There is a strong case for the motor own damage premium (premium paid to cover accidental/theft damage to the vehicle) to be revised downward so that the benefit of lower rates is enjoyed by all the people," he said.
According to him, the discount offered on the basic vehicle premium ranges between 50-60 percent in addition to the 'no claim discount' enjoyed for not making a claim.
The claims ratio in the own damage portfolio is also around 55 percent.
"So it is time for the fat to be burnt so that the insuring public are benefited," he said.
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Speaking to IANS, public and private sector officials here confirmed that the discount rate ranges between 45-60 percent depending on the vehicle's age and the bargaining power of the insured.
"However, the discount is not offered across the table to all the policy holders. Only when a person asks for higher discount or shows competing quote then the rates are revised downwards. Unsuspecting insured pay up the full premium," the industry officials told IANS.
A Mumbai-based industry official told IANS over phone that a discount of 40 percent is offered across the board and getting higher percentage depends on the bargaining power.
"In the case of new vehicles where the vehicle dealer issues the policy, the policyholder is charged full premium while the insurer's pay back the dealers the hefty discounts. This is nothing but undue enrichment," an official said.
"The own damage premium rates are not fixed by the insurance regulator. It is possible for every insurer to file his own rates and discounts and provide actuarial justification for the same," K.K.Srinivasan, former member Insurance Regulatory and Development Authority of India (IRDAI), told IANS.
"In such a laissez-faire set up, a smart policy holder can fish for better rates and terms but not all policy holders are equally well informed and that information asymmetry helps an informed policy holder and a less informed policy holder suffers," he added.
According to him, IRDAI fixing the rates is not a solution as it would result in annual increase in rates as in the case of third party liability coverage.
"The third party premium increases year-on-year based on a mathematical equation that looks scientific on paper but is based on data and assumptions that are not questioned. Similarly, if the premium to cover vehicle damage risk is fixed by IRDAI then it will most certainly go up. The losers will be policy holders. The gainers will be insurers and intermediaries," Srinivasan said.
According to an industry official, IRDAI's actuarial department should wake up to the market practice and question the insurers about their basic rates and the assumptions.
"The regulator has to check whether the discounts are given as per the norms or is there a violation of the product's file and use norms. If it is the latter then there is a clear case of violation and IRDAI can levy a penalty," Srinivasan said.