Insurance of automobiles - add-ons

As we travel on roads,  we jostle in traffic - we see hundreds of motor vehicles of various hues – and sadly there are accidents too .. .. .. Motor vehicle accidents are one of the major causes of death and injuries in India.   Motor Vehicles Act 1988 covenants various aspects of automobiles on road. .. ..  

The Act inter-alia, makes  vehicle insurance mandatory.  Sec 146. (1) No person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public place, unless there is in force, in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of this Chapter.. .. ..   and there is Motor vehicle insurance.

In 1980s, there were broadly 3 types of policy coverages in Motor Insurance : Act only policy; Third Party insurance and Comprehensive Policy. For Two wheelers Act only premium was Rs.40/-; for Third Party it was Rs.48 and for comprehensive Rs.48 + premium charged on SI – the % of premium for the OD portion was on the Sum insured – approx. around 3 to 5 %

Now there typically are two : Liability Only & Package Policies.  Liability are Act Policies that cover  the vehicle owner’s liability to Third Party bodily injury and/ or death and Property Damage. Package policies are Comprehensive policies that besides TP liability cover the OD ie., damage to vehicle also. Both the policies extend to cover Personal accident to owner-cum-driver of vehicles. There are very many variants – additional coverages known as ‘Add-ons’  .. .. .  

In the  All India Motor Tariff in vogue  since 2002, the sum insured is known as IDV – Insured’s Declared value, technically the value fixed by the proposer though the Insurers do have band limits for such value.  Though it might sound new to some, the All India Motor Tariff (AIMT) allows Agreed Value Policies for automobiles too.

If your Insurance wisdom recalls that there existed in the Motor Tariff, provision for rating Auto cycles or Mechanically pedal cycles – then it reveals that you are  old  !    In the erstwhile All India Motor Tariff, such vehicles were charged a  mere Rs.30 + 0.40% of IEV for Own Damage. The definition for Auto cycles was ‘any motor cycle with an engine capacity exceeding 35 cc but not exceeding 75 cc  with a constant gear ratio and having pedals for self-propulsion’.

Yesterday read with interest a newsitem in MailOnline that the insurance costs in UK have increased and have hit a record high of £511 a year. Here is something excerpted from that :

The average driver now pays £511 a year for insurance, a record high according to official data. The price of typical car cover rose 7 per cent, or £39 a year, from the first three months of 2023 to the second quarter, according to the Association of British Insurers. The trade body said the average premium paid by motorists renewing their cover rose by £36 to £471, while the average premium for a new policy was up £21 to £566.

The distinction reflects the different risk profile of new and renewing customers. For example, a new customer may be more likely to be a younger, less experienced driver. The ABI monitored the price of 7million motor insurance policies to come up with the averages, which are for actual premiums paid, not quoted. Premiums are rising as car insurers pass on their own costs. In the first quarter of 2023 insurers paid out £2.4billon in motor claims claims, up 14 per cent in a year.

Meanwhile the cost of vehicle repairs leapt by 33 per cent over the year compared to the first three months of 2022, to £1.5billion. Car repairers have faced a big hike in their costs, which they have passed on to insurers, and in turn to drivers. For example, repairers have seen a 300 per cent rise in energy bills compared to before the cost of living crisis began in 2021. The cost of providing a courtesy car has risen 30 per cent, and paint and part prices by 16 per cent.

Mervyn Skeet, ABI director of general insurance policy, said: 'With many families facing higher cost of living bills, no one wants to see the cost of their motor insurance rise.  'Insurers remain determined to ensure that motor insurance remains as competitively priced as possible, but this has become increasingly challenging, given the continued rising costs that they are facing. 'And despite cost pressures, it can still pay to shop around to get the policy that best meets your needs at the most competitive price.'

Insurers are no longer allowed to charge renewing customers more than new ones. That means if a driver renews, they should be quoted the same - or less - than if they had started a new policy with the same insurer !  it may still be possible to get a better deal by shopping around.

Black box policies are where the insurer uses a system in your car to monitor your driving, either a separate device or using the driver's smartphone. These are designed to reward those who drive carefully. They can cut premiums substantially once you start proving you are a good driver. Some insurers even offer an upfront discount if you take out a telematics policy.  Another way to cut premiums is to ensure that only regular drivers are named on the policy.  Adding a young, inexperienced driver can be a false economy, especially if you have a large or higher-powered vehicle.  The premium will be affected by the youngest driver, and he or she may not have a no-claims bonus. 

Something interesting on ‘Add-ons’ :  Some car insurance deals include extra benefits, such as a courtesy car, windscreen cover, breakdown cover and motor legal protection. All of these could definitely come in handy, but they will almost always increase the total cost of insuring your car. Many consumers who buy add-on insurance then forget they have it, and some deals are only claimed on once every 664 years, states the Report. 

Interesting !

With regards – S. Sampathkumar
11.8.2023.