In the recent regulation rolled out by the Insurance Regulatory and Development Authority of India, the governing body announced its withdrawal of long-term motor insurance policy with effect from 1st August 2020.
The long-term motor insurance policy stated mandatory three-year policies for new cars and five-year third party insurance coverage for new two-wheelers. After it was made declared by the Supreme Court of India in 2018, many insurance providers started offering long-term policies. It included long term package plans covering both third-party insurance and own-damage protection for three-years or five years.
However, the reason behind revising the insurance terms is said to be unaffordability of the insurance covers by customers and no standard pricing by the authority which makes it difficult for the insurance companies to set actuarial pricing. Also, since the automobile purchases are higher with the loans, including long-term insurance coverage further increased the overall cost, which gets harder for the consumer to bear.
Since the situation of the global market has been in flames due to pandemic and lockdown, this regulation is expected to trace an increase in the purchase of new vehicles. The earlier figures were plunged in because of low automobile buying trends leading to dip in the numbers of insurances.
However, this will pick up the pace amongst buyers with its low vehicle costs, as compared to the pricing hike noticed during the previous years. With no compulsion of long-term insurances, consumers are more inclined to purchase the two-wheelers and four-wheelers with insurance policies with more options from the insurers, expecting flexible ones, covers maximum areas and are suitable to their budgets.
With the new development, the consumer will also be free to switch the insurance provider if the facilities are not satisfactory soon after rather than being stuck with it for a longer duration. This will favour the consumer satisfaction more and will also motivate the insurance providers to introduce more short-term cover plans.
Overall, this new move by IRDAI will encourage consumers to buy new vehicles, which eventually will boost the graph of insurance sector in terms of automotive industry since it is the largest sector for general insurers which has recently seen a low due to the global pandemic.