Sixth Pay Commission: Too serious a business to be left to the car dealer

Sixth Pay Commission: Too serious a business to be left to the car dealer

When you buy a car, usually the car dealer offers first-year insurance free of cost. Instead of passively accepting this freebie, look closely at the policy to see if it offers you comprehensive and adequate cover

September and October have always been favourable months for car manufacturers as the festive season propels their sales higher. This year, besides festive fervour, the Sixth Pay Commission's payouts have filled car showrooms to the brim with prospective buyers. According to industry estimates and company figures, in September the top six manufacturers in India notched up a 2.4 per cent year-on-year rise in car sales.

If you are buying a car this season, pay heed to the insurance cover and make sure that it is comprehensive and adequate. Vehicle insurance protects you against several risks: theft, damage, death of driver or passenger, and damage caused by your car to some other vehicle, person or property. Although tailor-made covers have not debuted in the market yet, cut throat competition is working in the interest of consumers. With the Insurance Regulatory and Development Authority (IRDA) freeing up prices in the general insurance space — motor, fire and engineering — in January this year, there is much scope for you to bargain and get the best possible rate.

Tumbling rates, soaring discounts
Motor insurance consists of two main parts: own damage and third-party liability. According to the law of the land, every vehicle owner must have at least third-party liability cover. The regulator has freed only the own damage insurance cover rates so far. Depending on the size and the make of the car, own damage rates have come down almost 20 to 40 per cent. Says Rahul Aggarwal, chief executive officer, Optima Brokers: "The premium for a comprehensive insurance cover has fallen between 25 and 40 per cent depending on the type of car. The fall has been more in case of premium cars that cost Rs 10 lakh and above. For smaller cars like the Santro and Maruti Alto, the drop has been nearly 20 per cent."

While the regulator freed up pricing in January, the premium rates fell steeply only during the last four months. Insurers initially started off by offering 10 per cent discount, then slowly graduated to 20 per cent, and now are giving discounts as high as 40 per cent.

Main components of the policy
A vehicle insurance cover has the following main components:

Own damage. This cover entitles you to claim compensation in the event of damage or theft of your vehicle. Various factors dictate the premium of a standard policy: type of vehicle, its engine capacity, its age, and the region in which it is registered. While these are the broad parameters, the exact premium for your car is calculated on the basis of its insured declared value (IDV). When buying a policy, never compromise on this value as this is the amount that the insurance company will pay you if your car gets completely damaged or stolen. Beware: a steep discount in premium might mean a lower IDV. While buying the policy always ask for the exact IDV to get an idea of the insurance amount you are likely to get in case of a casualty. The IDV of a vehicle declines with age (insurers generally give a depreciation schedule for up to five years).

Third party. According to the Insurance Act, it is compulsory to have third-party liability cover. In metropolitian cities it becomes imperative to have such a cover due to higher chances of accidents.
"Third party liability under the insurance law in India is unlimited," says M. Ramadoss, chairman and managing director, Oriental General Insurance. That means if you hit a person on the road, then the liability is unlimited. In case of property damage, the liability is limited to Rs 7.5 lakh.

Points to remember
Here are key aspects that you should keep in mind while buying vehicle insurance:
Premium. The insurance regulator has freed the pricing of products but not the wordings. Therefore, the whole industry is selling more or less the same product. Pricing is the only tool in their hands for driving sales. Use this to your advantage. "A customer must insist on getting quotes from different companies. Ask a friend who has the same car what premium he pays. By doing a bit of legwork and haggling, a customer can get discounts as high as 40-50 per cent," says Ramadoss.
You can bargain for a lower premium in case you have a no-claim (or fairly low claim record) history. “Longer the claim history, higher is the premium levied by companies,”says Eswaranatarajan N., head, motor insurance, ICICI Lombard General Insurance.

Moreover, keep in mind that you can transfer the vehicle insurance from your old vehicle to the new one. “The no-claim bonus goes with the driver and not with the vehicle. So when you sell a vehicle and buy a new one, the no-claim bonus from the earlier vehicle can be transferred to the new one,” he adds.

Co-payment clause. Watch out for the co-payment clause, also known as excess. While offering a lower premium, insurers pass on some of the risk to the customer using this clause. In case of a claim, the expense will then have to be borne by both the insurer and the insured. Hence, avoid the co-payment clause even if it means paying a higher premium.

Claims and customer service. These are the two most important criteria that should be kept in mind while buying or renewing a policy. Today one out of every three vehicles meets with an accident. Hence customer service plays an prominent role. According to Darvesh Panchal, practice leader, Prudent Brokers, "The ease of getting a claim settled without any hassles is a big factor in motor insurance. Always look for companies that offer cashless facility (i.e., they get the vehicle repaired at an empanelled garage). Also check out what other value-added services they provide."
A few dealers or brokers help their customers in getting the claim. "The most important thing to look for in the dealer or the intermediary is the services he offers. See how qualified and geared up the intermediary is to provide claim support and information," says Aggarwal.

In case of total loss or theft, it takes more than three months to settle the claim. In case of theft, the insured has to lodge a complaint in the local police station and wait till it issues a non-traceable report. The process takes about three months. And needless to add, it requires you to make several rounds of the court and the police station. It is only after this report is submitted that the insurance company starts its work of paying you the claim. Any help that you can get from the broker or dealer will come as welcome relief.

More regulatory changes needed
While the regulator has freed up pricing control, general insurance companies do not yet enjoy the freedom to alter the wordings of the policy. Says Eswaranatarajan N., “Today only the premiums have been de-tarriffed and not the products. What we sell in the market is basically one product with a common set of policy wordings. To open up the market and in the interest of the consumer, it is anticipated that the regulator will introduce flexibility in wordings and allow new products.”

N.K. Kedia, director (marketing), Iffco Tokio General Insurance too feels the same. “Freedom in wordings would allow us to come out with innovative products. The industry would then develop on the lines of matured markets. This move will be in the consumer's interest as it will allow introduction of new products, and lead to greater choice."

Ramadoss of Oriental Insurance is of the view that greater regulatory vigil is the need of the hour. “There should be strict vigilance against uninsured vehicles. The government should take action against them. Because so many vehicles remain uninsured, there is a lot of leakage of premium. After this is taken care of, premium rates will come down further,” he says.
Till these regulatory changes come about, make the best of the current regime and get yourself a comprehensive cover at the lowest possible cost.

Source: http://www.financialexpress.com/