What vehicle owners can do to maximise their no-claim bonus: Experts answer

With motor insurance premiums set to rise, opting for a voluntary deductible will reduce costs

The Insurance Regulatory and Development Authority of India recently proposed new rates for motor insurance third-party (TP) premiums. The hikes could range between 2 per cent and 16 per cent across vehicle categories. After receiving feedback from the industry, the regulator will announce the final rates (perhaps with a few modifications), which will become applicable from April 1.

Motor insurance policies have two components — TP and own damage (OD). TP cover has to be mandatorily purchased by every vehicle owner. Its premium gets revised every year.

Explaining why the TP cover premium rates get revised every year, Shanai Ghosh, chief executive officer (CEO) and executive director, Edelweiss General Insurance, says: “The TP liability on insurance companies for bodily injury and death is unlimited and is decided by the court. And they take into account earning capacity, dependency, inflation, etc, when deciding on the award amount. They also take into consideration the interest amount from the date of lodging the claim. Hence, the award amount has been increasing year-on-year and therefore, there have been increases in premium just to keep pace with claims inflation.”  

The average increase in TP premium rates across vehicle categories that have been proposed this year is around 7 per cent.

OD premium rates are decided by insurance companies. They depend on the type of vehicle, city, vehicle age, and each company’s claim experience. “Thankfully for customers, OD rates have come down over the past three-four years, owing to competition,” says Animesh Das, head of product strategy, Acko General Insurance.

Customers, on their part, can take a number of steps to minimise the premium they pay. Currently, the most important thing owners can do is to drive their vehicles carefully. “This will help you avoid accidents and earn a no-claim bonus (NCB) each year,” says Ghosh. The amount of NCB offered keeps increasing for each claim-free year and can go up to 50 per cent of the OD premium. Also, avoid making a claim for small amounts, so that they don’t lose the NCB.

Customers can also reduce their premium by opting for a deductible amount. “If you inform the insurance company that you will bear the costs up to a certain amount, you could earn a discount of 3-4 per cent on your premium,” says Ankit Agarwal, CEO and co-founder, InsuranceDekho.

Your vehicle’s premium is decided on the basis of its insured declared value (IDV). It declines as your car gets older. “Make sure the IDV you buy is optimal. If it is higher, you will end up paying a bigger premium,” says Das. At the same time, make sure you are not under-insured; otherwise in case of total loss, you will not be compensated adequately.

Motor insurance is sold through a variety of channels — agents, brokers, and through insurers’ own websites. You will get the lowest rates if you purchase it directly from an insurer. In case of channels where the insurer has to pay a commission to an intermediary, the premium rates will be higher. Another advantage of buying directly from an insurance company is that the chances of mis-selling get reduced.

Newer products are being tried out under the regulatory sandbox regime, which will allow customers to reduce costs.

Edelweiss General Insurance will launch a policy soon that will allow customers to cover multiple cars under one policy. And when they are not using a car, they can switch off the accident cover for it using an app (the fire and theft cover will always be on). Such novel ‘usage-based’ products will allow customers to reduce their premiums further.