If you own a car, you know that car insurance is mandatory for safety reasons. Since you cannot predict road mishaps, it is good to have a financial cover against any loss or damage. The damage can be accidental or non-accidental.
Additionally, you must get a personal accident (PA) cover for yourself if you are the owner-driver. The same rule applies to two-wheeler owners also. However, this compulsory rule is applicable only for third-party insurance policies related to cars or bikes. It acts as a safety net against damage to third-party property or vehicle and physical injuries in an accident.
An own-damage cover or comprehensive policy is not compulsory – you may buy them as per your requirement. Also, remember to renew car insurance on time to avoid a fine or even imprisonment.
Recently, the Madras High Court approved a new law related to vehicle insurance in Tamil Nadu. According to the rule, all vehicles sold in the state from September 01, 2021, need compulsory bumper-to-bumper insurance.
1What is Bumper-to Bumper Insurance?
The bumper-to-bumper insurance is a cover for all the occupants inside a vehicle, including the driver and passengers. It also includes the pillion rider of your bike. You must purchase this policy while buying a vehicle in addition to a personal accident cover. The validity of the cover is five years.
The Madras High Court ruling is for the residents and the transport department of Tamil Nadu. State High Courts can introduce a rule beyond their respective states, but in this case, there has been no such attempt. So, it is not applicable pan-India.
2How Will the Insurance Affect the Insurance Premiums?
The new rule will affect the vehicle owners and insurance companies operating in Tamil Nadu. The premium contribution of the motor insurance segment is almost 40% of the overall general insurance sector. Again, the share of the own-damage premium is 41% of the total motor insurance costs. The High Court ruling will directly affect this own damage premium. The category of motor insurance ranks second in this industry in India. So, any change in the insurance premium or coverage at a particular location will impact the total revenue.
According to industry experts, the new rule will increase the prices of all vehicles in the state by some percentage. All vehicles, including bikes, scooters, budget cars and medium-range four-wheelers, as well as luxury cars and sport utility vehicles (SUVs), would be affected. As a chain effect, the prices of these vehicles may also rise. Buyers may shell out more down-payment for both two-wheelers and four-wheelers, according to car dealers and experts.
Also, read about How to Adjust Four-wheeler Premium with a Car Insurance Calculator?
3Impact On The Premium Payment By Policyholders
The Insurance Regulatory and Development Authority of India (IRDAI) has made a third-party policy compulsory so that all vehicles are insured. The regulator has fixed the policy premium in a way that is affordable to all. Otherwise, vehicle owners tend to evade insurance on the grounds of extra cost. Insurers do not have any right to change the terms and conditions or the rates of this policy.
Let’s look at some factors that make insurance covers dearer for vehicle owners:
- The IRDAI does not have control over own-damage (OD) policies, so they are not compulsory.
- Insurers fix the premiums, rates, and terms of these policies independently, so the prices of OD covers differ between insurance companies.
- Insurers generally charge a high price for OD policies.
- Since the bumper-to-bumper insurance comes under OD policies, it will increase the policy cost further. It is also compulsory similar to the existing PA policy.
- The PA policy is valid for one year, whereas you must buy the bumper-to-bumper policy for a minimum of five years.
Some car manufacturers expect the IRDAI to step in to provide some financial relief to customers by withdrawing the long-term clause. Otherwise, many potential buyers may delay their plan of car purchase, which in turn will affect the entire automobile industry.
So, the compulsory bumper-to-bumper insurance policy will significantly increase the car owners’ expenses. Although it ensures financial coverage for the owner-drivers and passengers, it may affect their decision to purchase any vehicle in the future.