If you bought a new two or four wheeler in the month of September 2018, you may be driving without a valid insurance policy for your vehicle.
Any motor insurance policy consists of three components- Motor Third Party (TP), Motor Own Damage (OD) and Motor Personal Accident (PA). Motor Third Party is mandatory and it covers the legal liability arising out of the damage made to the third party property. Motor Own Damage policy covers damages to the insured’s own property. On an average every year, premium derived from Motor Third Party contributes 50 percent, from Motor Own Damage contributes 40 percent and from Motor Personal Accident contributes approximately 10 percent to the total motor insurance premium for the industry.
Last year starting September, the insurance regulator, on the directions of the Supreme Court made the sale of long term Motor Third Party policies mandatory. As per the amended regulations, vehicle owners are mandated to buy a Motor Third Party policy for a minimum period for 5 years for a 2-wheelers and for a period of 3 years for 4-wheelers. The premium amount for the policy is also to be paid upfront for 3 years and 5 years respectively.
Post amendments vehicle owners could only buy two kinds of motor policies. The first one would be a bundle of 1 year of Own Damage policy with 3 year Third Party for 4-wheelers and 1 year Own Damage and 5 year Third Party for 2-wheelers. The second option for vehicle owners would be a comprehensive policy which would have 3 years Own Damage and 3 years Third Party For 4-wheelers and 5 years Own Damage and 5 years Third Party For 2-wheelers.
Industry sources tell CNBC-TV18 that 80 percent of the motor policies sold in September 2018 were sold in the form 1 year Own Damage and long-term third party. Most vehicle owners are unaware about the fact that they are supposed to renew the own damage element as no clear disclosure by auto distributors was provided at the time of sale of the vehicles. Most vehicle owners are under the impression that their insurance policy would last for 3 years and 5 years for 4-wheelers and 2-wheelers respectively not knowing that only the Third Part element is for long term but the Own Damage comes up for renewal in one year which approximately was 80 percent of the policies sold.
The situation spells a negative picture for general insurance companies as they expect a large portion of own damage policies will not come up for renewal due to sheer ignorance and lack of awareness amongst policy holders. Because a major portion of the own damage policies may not come up for renewal it would also lead to a significant drop in the motor insurance premium for these general insurance companies. This is very crucial as on an average 50 percent of the portfolio for motor insurance companies comprises of motor and 40 percent of the motor portfolio comes from own damage policies.
A policy holder also would be a loss as he won’t be able to claim any damages which happen to his vehicles if he does not get the own damage policy renewed, again only because of ignorance and lack of awareness.