Owners of private vehicles, two- and four-wheelers, will have to shell out more for their motor insurance premium while renewing their existing policy or buying a new vehicle. This is because the premium for the compulsory personal accident (CPA) cover component of motor insurance will increase to Rs 750 per annum, with immediate effect. This premium is currently Rs 50 for two-wheelers and Rs 100 for four-wheelers.
The rise in premium is following the increase in the amount of the CPA cover from Rs 1 lakh for two-wheelers and Rs 2 lakh for four-wheelers to Rs 15 lakh for both. The Insurance Regulatory and Development Authority of India (Irdai) issued a circular on September 20 to this effect.
Insurers can start issuing the revised policies with immediate effect and will have to file for these covers under File and Use Guidelines on or before October 25, as per Irdai’s circular.
“A minimum Capital Sum Insured (CSI) of Rs 15,00,000 shall be provided under CPA cover for owner-driver under liability only, under Section III of package policies to all classes of vehicles and bundled covers wherever applicable at the premium rate of Rs 750 per annum for the annual policy. This rate will be valid until further notice,” said Irdai.
What is compulsory accident cover?
“The provision of compulsory personal accident cover for owner-drivers was introduced in 2002, when motor tariffs were extensively revised. This was charged compulsory for vehicles registered in the name of an individual. This cover has now been revised to Rs 15 lakh, which is a good amount considering the risk exposure of people driving bikes and cars,” Puneet Sahni, head-product development of SBI General Insurance, said.
This premium is collected as part of the Third Party premium, which is compulsory. The other component of motor insurance is Own Damage, which is optional. A comprehensive motor insurance will have all three components, Own Damage, Third Party and CPA cover.
The regulator also said that companies could also offer a higher sum assured under CPA for higher premium, in multiples of Rs 1 lakh or Rs 5 lakh. Some insurance companies already offer this option to customers, through add-on covers, SBI being one of them.
“Prior to this circular we were offering enhanced personal accident cover as an add-on cover from Rs 2 lakh to Rs 50 lakh. Now it would be beyond Rs 15 lakh and up to Rs 50 lakh. Quite a few people used to take it. Generally people used to take it till Rs 10 lakh,” Sahni said.
The additional premium charge was 0.05% of the sum assured, which is the same as fixed by the Irdai, he said. (Rs 750 is 0.05% of Rs 15 lakh)
Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance said: “This move is a step in the right direction. “It is vital to have an appropriate personal accident cover since it provides much needed financial support to the policyholder and their family members if she/he is disabled or succumbs to injury due to an accident. This will address the issue of under insurance to some extent.”
In case of an accident, the policy covers the owner-driver, even if the owner is not the one driving and is sitting in the passenger seat.
According to Tarun Mathur, chief business officer-general insurance, Policybazaar.com, normally when customers buy car insurance, their typical focus is towards the car. “And if you buy only third party insurance, the CPA cover is available with it mandatorily. The sum assured will be paid out in case of disability or death,” he said.
Is this enough?
“The CPA cover bundled in the motor cover is a restrictive cover, in the sense that it is only operative whilst you are alighting on to the vehicle, or off the vehicle or whilst in the vehicle. It is not a 24-hour cover. So a separate personal accident cover is definitely required,” Sahni said.
Mathur agreed that instead of buying additional CPA cover, customers should opt for a separate term life and personal accident cover that would cover hospitalisation because the usage of this policy is limited.
“You would want to be covered for all kinds of accidents and not just car accident,” he said.
Will the cost will go up?
Customers will now have to buy the CPA cover for a longer term, three years for four-wheelers and five years for two-wheelers, along with the mandatory long-term third-party cover. This will push up the overall cost.
Agreeing to this, Sahni said, “It is true that overall cost will go up, but look at the benefits. The policy secures the customer in case of an unfortunate accident in the long term. Customers are not aware that accidents can be a big risk.”
In fact, accoriding to Sahni, premium rates could be lower than Rs 750 as mandated by Irdai.
“The pricing is whatever the company may set. It could be decreased if companies pass on the cost to customers. I am insuring a customer for three years, so I am saving administrative costs and I may pass on the savings to the customer,” he said.
Mathur said, “Now with premium rising to Rs 750 it will make a difference. Because it is compulsory and for three or five years, depending on whether it is two- or four-wheelers. The average ticket-size we see is Rs 9,000 on our website. Even if we say it is Rs 7,500, when you are increasing the premium by 8-10% for someone, that is a high cost. Plus, your new car insurance has moved to three years. You club this and it is a 4X effect on the total amount of premium. This will start affecting the affordability of the car itself. Now insurance will become something you have to think about or get it financed. It will impact the customer.”
Rs 15 lakh Revised compulsory personal accident for two and four wheelers
Rs 750 Revised premium for the compulsory personal accident cover
October 25 Date by when insurance companies must file new policies