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Madras high court’s 5-yr motor cover order to hike car costs

CHENNAI/MUMBAI: The Madras high court verdict making 5-year ‘bumper-to-bumpermotor insurance mandatory will increase the cost of vehicle acquisition by 8-10% of its current price. According to dealers and car marketers, this decision will make a car dearer by anywhere between Rs 50,000 and Rs 5 lakh.
Federation of Automobile Dealers Associations (FADA) president Vinkesh Gulati said, “This will be a major issue for an industry just about coming out of the pandemic. This will push up acquisition cost of motorcycles and scooters by Rs 5,000-6,000, entry-level cars like Alto or Kwid by Rs 50,000 and a mid-market SUV like Creta by more than Rs 2 lakh.”
The catch in this is that pricing is controlled by the sector regulator Irdai, which in August 2020 withdrew mandatory long-term insurance for new vehicles. “The Irdai will have to agree to change the premium structure,” said JATO Dynamics president Ravi Bhatia. “Currently, the 1-year policy is around 3% of the car value. With this ruling, the dealer has to sell the vehicle with 5-year insurance, which is a huge upfront expense for the customer. Given that the insurance industry globally is moving towards more flexibility where the customer pays per month depending on usage, this is counter-productive and will retard car sales,” he added.
Car marketers say this will go against the holistic view of the auto industry, which balances affordability, safety and growth. MG Motor India president & CEO Rajeev Chaba said that the auto industry needs a “holistic view” that balances “consumer interests, safety and overall cost of acquisition & ownership with environment & emission issues and job creation & local manufacturing”. Without that, he added, there cannot be “exceptional growth”.
Insurers are divided in their view on whether a comprehensive cover can be made mandatory. “The law requires that a vehicle owner buy only third-party insurance. Comprehensive cover is a voluntary contract between two parties. Someone can appeal, saying that they cannot be forced to purchase a cover,” said an official. However, another insurer said that there is scope to make cover mandatory as that is the only way to ensure insurance penetration. “If third-party insurance was not mandatory, we would not be getting the extent of coverage that is there at present,” he said.
Industry officials feel that the order is directed at the transport department, asking them to ensure compliance. “The insurance industry has not been asked to do anything and we will continue to sell policies. Even today, 99% new vehicles opt for comprehensive cover,” said an official.
“In the larger interest of society, vehicles should have adequate coverage and owner should be aware of the scope of coverage. Dealerships should have a board giving the customer information on accidental insurance cover as well,” said Digit Insurance head (legal, claims & investigation) Ajay Jadeja. He added that If owner buys standalone compulsory personal accident policy, then the owners risk is covered in all vehicles he owns.
The HC order reads, “After September 1, 2021, it is mandatory for coverage of bumper-to-bumper insurance every year, in addition to covering the driver, passengers and owner of the vehicle, for a period of five years.” Insurers are not clear whether implementation would mean that the premium for five years has to be collected up front.
Industry officials are also surprised at the use of the term ‘bumper-to-bumper’ cover as it is a layman term for widest possible cover. This, in some cases, is interpreted to mean comprehensive cover, while others use it to refer to zero depreciation policies where the insured get parts replaced without deduction.

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