The Insurance Regulatory and Development Authority of India (IRDAI) has officially released a circular mentioning the withdrawal of long-term motor insurance package plans including third party insurance as well as own damage. This will come into effect from August 1, 2020.
The insurance regulatory body decided to withdraw the long-term insurance package policy after noticing several issues and concerns related to the performance of these policies. Some of the reasons that compelled the organisation to take this step are challenges in actuarial pricing (estimate of the expected value) for long term own damage policies, difficulties in distribution of polices, an expensive proposition and a possibility of owners selling their vehicles due to financial reasons or default in loans.
The long-term insurance cover was introduced in September 2018, following the Supreme Court ruling wherein the general insurers were directed to issue only three-year motor third-party policies for new cars and two-wheelers. Moreover, the insurance regulator has directed the general insurers to provide long-term package policy including own damage and third-party, for three or five years or one year.
The body further mentioned that the customers with such policies would be burdened with the same insurer if they get deficient service and calculation of no claim bonus (NCB) is not uniform, which will result in confusion among policyholders. IRDAI also asked the insurers to provide standalone own damage insurance for vehicles from September 1, 2019, as the third-party portion was already covered under the three- or five-years policy.
With coronavirus pandemic and the lockdown, sales of vehicles have plunged and in turn, the revenue for the insurance providers have fallen too. The withdrawal of long-term insurance package policy is likely to benefit the customers as the fact that the on-road prices of the vehicles will become much cheaper. This is expected to prompt the customers to purchase new vehicles, as the automobile sales are hitting the rock bottom.