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Business News/ Money / Calculators/  Lower own-damage car insurance premiums
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Lower own-damage car insurance premiums

Since 1 January 2018, some general insurance companies have announced a reduction of 5% to 20% in the own damage (OD) part of motor insurance premiums

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You can expect your motor insurance premium to go down in 2018. Some general insurance companies have announced a reduction of 5% to 20% in the own damage (OD) part of motor insurance premiums from 1 January 2018. While companies like Bajaj Allianz General Insurance Co. Ltd, ICICI Lombard General Insurance Ltd and Universal Sompo General Insurance Co. Ltd have already cut the OD premiums, others like HDFC Ergo General Insurance Co. Ltd and Future Generali India Insurance Co. Ltd are also expected to implement the reduction, though they have not finalised its quantum yet. 

Rajiv Kumar, managing director and chief executive officer, Universal Sompo General Insurance said that the implementation of Motor Insurance Service Providers (MISP) guidelines from 1 November 2017 is the reason for cutting OD premiums by 15-20%. The Insurance Regulatory and Development Authority of India had released the MISP guidelines in August 2017. The guidelines specify that for selling company’s insurance policies, an MISP can be offered incentives by the insurer or the intermediary it has tied-up with. But the maximum amount allowed is 19.5% of the OD premium. The guidelines specifies that MISPs will not be allowed anything over the incentives, whether it comes in the form of fees, charges, infrastructure expenses, advertising expenses, documentation charges, legal fees, advisory fees, or any other payment. 

There have been other cost savings too. ICICI Lombard, for instance, now generates 87.5% of all its policies digitally and over 90% of its OD motor surveys are also done through video streaming, said Sanjeev Mantri, executive director, ICICI Lombard. “This also saves a big cost for us," he said. 

The introduction of Goods and Services Tax has also benefited. “Previously, we would end up paying VAT (Value-added Tax) on the spare parts (for vehicles), which was booked as an expense. With GST, we get input credit for what we spend on spare parts. That has come as a significant saving as we were paying around 12% VAT," Mantri said. 

Motor insurance, including personal and commercial vehicles, is the largest part of general insurance in India. The reductions in premiums are being offered mainly for personal vehicles. Some insurers are currently limiting it to private cars while some are extending it to two-wheelers too. The reduced premium is being offered on new policies and renewals.

The reduction is only on the OD part of the car insurance premium. A motor insurance policy has two main components—third-party liability and OD. In India, it is mandatory for all registered motor vehicles to have insurance for third-party liability. The premium for this is fixed by Irdai and is announced every year. Premium paid towards this do not cover damage to the vehicle or its owner. It only covers liabilities arising from damage caused to a third party. The damage could be due to an accident resulting in injury, death, or damage to property. 

The OD part of motor insurance is optional and it covers damage to the insured vehicle in case of an accident. This part of insurance also covers thefts.

Premiums for this part of a motor insurance policy are not fixed by the regulator and insurers can price it as they see fit; hence the ongoing offer of lower premiums. 

This distinction may not be clear to some people because when they buy a motor insurance policy, the third party and OD covers come bundled in it. Without knowing it, they actually pay premiums for both covers. While buying a motor insurance, you should compare the pricing being offered by different insurers and then decide.

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Published: 16 Jan 2018, 05:06 PM IST
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