After 10 years, a double whammy for the insured

The recent announcement of a hike in car insurance premium is just the tip of the iceberg. The Insurance Regulatory and Development Authority (Irda) has now raised the amount of compulsory deductible you need to pay.

The deductible has been revised after 10 years and will kick in from April 1, 2012.

“Considering the inflation and increase in administrative costs of insurance, the value of deductibles in real terms has diminished. Hence, the regulator feels a necessity of revision in the amount of compulsory deductibles,” Irda said in a circular sent to insurers.

Once the new guidelines take effect, one has to pay depending on the engine capacity — denominated in cubic centimetre or ‘cc’ displacement — of the vehicle they own. So, owners of three-wheelers rated as private cars with an engine not exceeding 1,500 cc cannot claim anything less than Rs1,000. And in case vehicles exceed the 1,500 cc specification, Rs2,000 has been set as the standard deductible amount. For owners of two-wheelers, the minimum claim amount has to be Rs100.

A deductible, or an excess, is the minimum amount you need to bear while making a claim. For instance, if you make a claim of Rs5,000, the applicable deductible is excluded by the car insurance company and you can claim only the amount over and above the threshold.

Motor insurance companies are apparently on cloud nine as the decision came close on the heels of the hike in the third party premium this week.

“This is a step in the right direction. It will help motor insurance companies contain their losses to some extent. Also, the revised deductible will make the policyholders more responsible and cautious,” said Amarnath Ananthanarayanan, MD & CEO, Bharti Axa General Insurance.

Irda has pegged the ultimate loss ratio at 145% for 2011 and asked motor insurers to make provisions accordingly. This step will ensure insurance companies bring down their losses from around Rs10,000 crore compared to the past year.

KG Krishnamoorthy Rao, MD & CEO of Future Generali India, says, “This will help us bring down the claim ratio by 1-2%.” He adds: “This move will also deter consumers from making claims for a small amount, thereby bringing down transaction costs.”

Experts throw in a bit of caution, saying customers should avoid making claims for small amount as they stand to lose out on the no-claim bonus which can bring down the premium amount by up to 50% in subsequent years.

This apart, Irda has revised premium coverage of paid drivers, conductors and employees of the insured motor vehicles from Rs25 to Rs50 per capita. This is a legal liability cover coming under Workmen’s Compensation Act on payment.

The revision of this rate has been effected after a spell of 15 years.