One accident cover enough for multiple vehicles

The New Year may usher in a cheaper insurance bill for driver-owners who own multiples vehicles. The Insurance Regulatory and Development Authority of India (Irdai) has directed separation of the personal accident (PA) cover from the comprehensive vehicle insurance policy from January 1 onwards.

The move is set to remove the possibility of paying an additional premium for PA cover for motor insurance if you already have an existing PA cover. DNA Money spoke to experts to understand how consumers gain from the latest move.

With the unbundling of the compulsory PA cover, a customer can buy a single standalone PA policy and the same would cover the accident risks for all the vehicles owned by them. Similarly, those who have a separate PA rider with their life or health insurance policy or a standalone PA cover too will be spared the requirement of the mandatory PA cover with motor insurance.

PA cover integrated into motor insurance

So far, A two-wheeler or a four-wheeler owner had to typically buy a comprehensive vehicle insurance policy that includes insurance against theft and damage, PA cover, and a third-party (TP) cover. A PA cover is meant for the owner/driver. The TP insurance is for any damage to another person's vehicle.

According to the Motor Vehicles Act, 1988, both the TP cover and PA cover are compulsory. This means if someone owns two vehicles, it was compulsory to buy two PA covers, which is a waste.

Explaining the rationale behind the unbundling of the PA cover, Sanjay Datta, chief of underwriting, reinsurance & claims at ICICI Lombard General Insurance said, "With motor insurance being mandatorily made long-term (three years for four-wheelers and five years for two-wheelers) it had become expensive for customers. So it is now being unbundled. But the fact remains that not having a PA cover is risky for the owner-driver,'' he said.

Double charge

Devendra Rane, Founder & Chief Technology Officer, Coverfox.com said: "Currently when a customer buys a policy for his/her car or bike, the PA cover comes as a mandatory part of the TP section for that vehicle. If she/he goes for a policy for another car/bike, he/she has to again pay for the mandatory PA cover. Thus, a customer ends up making dual payment for the same coverage."

The dual payment possibility for the same risk is perhaps why Irdai decided to unbundle the Compulsory Personal Accident (CPA) cover and allow issuance of a standalone CPA cover for owner-driver. Further, if a policyholder chooses to opt for the CPA cover as part of the liability only policy or the package policy as it exists today, he/she can continue to do so. In the event the policyholder chooses to take a standalone CPA policy, the CPA cover offered as part of liability only or package policy would be deleted.

"The new mandate states that effective January 1 it is not mandatory for the owner-driver to purchase the PA cover from the same insurer from whom they bought their TP cover. If they already have a standalone PA cover then they need not take it separately," said Sajja Praveen Chowdary, business unit head- motor insurance, Policybazaar.com. It is important for consumers to understand this because first year motor insurance is usally sold by dealers and included in the car cost.

With unbundling of CPA, a customer can buy a single standalone PA policy and the same would cover his/her risks for all vehicles owned by him/her. "This would save him overall CPA premium in all his/her subsequent motor policies," says Rane.

Pricing issues

In September 2018 Irdai had made it mandatory for vehicle owners to buy a PA cover for Rs 15 lakh for a yearly premium of Rs 750 when they buy motor insurance. Earlier it was Rs 1 lakh cover at a premium of Rs 50 for two-wheelers and Rs 2 lakh cover at a premium of Rs 100 for four-wheelers. In addition, the tenure of motor insurance was increased to five years for two-wheelers and three-years for four wheelers. This pushed up the premium costs for vehicle owners and a burden especially for two-wheeler owners who tend to be from the lower income group.

Effective January 1, 2019, Irdai has directed issuance of standalone CPA cover for owner-driver. Keeping in view the date of implementation, as an interim measure, insurers have been allowed to price the product in accordance with their general pricing philosophy, based on actuarial principles for the risk in question. This means some insurers could charge more than Rs 750 annual premium for Rs 15 lakh. However, if Irdai finds the pricing approach in variance from their general pricing philosophy/approach and not in line with actuarial principles, it may step in to correct such anomalies. At the moment, insurers have time till December 31 to tell Irdai how are they going to price their product, said an insurance official. Since there is no provision to check if the owner-driver has a PA cover if he chooses not to by the CPA, it is likely that customers do not buy it. What could then happen is that the cost could go down if insurance companies find no takers for the standalone PA cover.

Do remember that being the owner-driver of the vehicle, one is always at risk. Therefore it is advisable for every vehicle owner to have a PA cover to safeguard themselves from any mishap due to an accident, said Chowdary.

If opting for standalone PA cover

If you want to buy a standalone PA cover, ideally you should look for a sum insured of at least Rs 15 lakh, since that is what Irdai has mandated. Anything over and above that must be analysed based on your risk profile, income, profession, etc.

A standalone 24-hour PA cover for a 36-year old male for Rs 15 lakh sum assured could cost Rs 2,000-2,500 per annum. But it will offers 24-hours cover and covers accidents other than those just that occur due to your vehicle.

HOW MUCH IS THE COVER

Rs 15 lakh – Sum assured for CPA

Rs 750 – Premium for the CPA

January 1 – Date from when PA cover will be unbundled