In India, most vehicle owners buy insurance because it is compulsory. The Motor Vehicles Act, 1988, makes it mandatory for all vehicle owners to have a valid third-party insurance policy. Non-compliance can result in fines and even imprisonment. While they have the option of buying an own-damage policy or a comprehensive policy too, the awareness of these policies is growing by the day.
The Insurance Regulatory and Development Association of India (IRDAI) monitors and regulates the insurance landscape in the country and forms regulations to make insurance affordable and effective. Talking about bike insurance in India, there are three types of policies available:
- Third-Party Insurance – Third-party insurance protects you against damages, caused due to injury or death to a third party or any damage to that person’s property. It is compulsory, by law, to have third-party insurance.
- Own Damage Insurance – OD protects you against damage caused to your vehicle due to accidents like road collision, theft, fire, natural disasters, and man-made disasters, etc.
- Comprehensive Insurance – Comprehensive insurance for a bike safeguards you against losses caused to you, your co-passengers, and your vehicle in addition to third-party coverage.
IRDAI Guideline – Long-Term Insurance for Bikes
In September 2018, the IRDAI had introduced a long-term option in vehicle insurance. For two-wheelers, this meant that you could choose from either having:
- Both third-party and own-damage insurance covers for five years; OR
- Third-party cover for five years and own-damage cover for one year; OR
- Third-party insurance cover only for five years
Further, the IRDAI had also suggested that the total premium charged for a long-term two-wheeler insurance policy would be five times the annual premium for two-wheelers. Since it revises rates for the third-party cover every year, people opting for a long-term cover could ensure that these changes don’t affect them since the premium would be fixed for five years and collected upfront. However, the premium for the own-damage cover is determined by the insurance company and usually forms the bigger part of the premium amount.
Cancellation of Long-Term Bike Insurance
In August 2020, the IRDA decided to withdraw the long-term package cover, which had the third-party insurance and own-damage insurance for five years on two-wheelers. We believe this decision was taken for various reasons:
- To make buying a two-wheeler cheaper. Industry experts were of the view that withdrawing the long-term cover was a customer-friendly move because paying the premium at one go was becoming very expensive. Now that buying a long-term policy is not mandatory anymore, you will no longer need to shell out lump sum money for five years. This additional cost was increasing the overall cost of owning a bike. With this change, instead of paying for a five-year package, you will be paying only for one year.
- Allow policyholders to change the insurance provider if they were not satisfied with the current insurer. With a long-term policy, policyholders were bound to the same insurer for five years. Also, since the premium was collected upfront, insurance companies didn’t have to strive to maintain the service standards. By withdrawing the long-term option, insurers will be on their toes and offer the best possible service to policyholders, making the landscape competitive.
- Since the No Claim Bonus structure is not uniform across insurers, policyholders were facing a lot of confusion and dissatisfaction.
- For the long-term own-damage cover, actuarial pricing was a challenge for most insurance companies.
With the ongoing pandemic situation, where all the sectors have slowed down, the automobile sector has been hit. Hence the Government has brought about this move to push the sale of passenger vehicles. With the upfront cost of buying a bike becoming cheaper, it is expected that this move will be welcomed by potential two-wheeler buyers.
While the IRDAI had introduced long-term covers to ensure that the number of insured vehicles on the roads increases by reducing the possibility of policies that don’t get renewed after one year, there was dissatisfaction among policyholders for various reasons. 2019 was not a great year for the automobile industry, and this year, the pandemic and subsequent lockdowns threatened the sales further. With this move, the IRDAI has attempted to satiate the policyholders while trying to help the automobile industry boost sales.
While bike owners might find buying a new two-wheeler cheaper, the premium for the two-wheeler insurance policy will only be fixed for one year, unlike in the long-term policy where it was fixed for five years. While this brings relief to the auto manufacturers, insurance companies, and bike owners, the IRDAI is concerned about increasing the number of insured vehicles on the road. As a bike owner, ensure that you always have an active insurance policy and use a two-wheeler insurance calculator to calculate the premium amount before finalizing. Good Luck!