While third party insurance has been made mandatory by the government, own damage policy, a cover to protect one’s own vehicle from any physical damage, is an optional cover. After considering the technological development in vehicle segment and ever changing ecosystem IRDAI have proposed certain structural changes in the motor insurance own damage policy. A working group set up by IRDAI, after analysing the previous claim patterns, has recommended welcome changes making the policy procedure simpler and better.  The depreciation norm has also been eased in the new draft, ensuring the policy holder gains a higher cover even if his vehicle is older. The objective of the authority is to maintain equilibrium between the large motor segment and consumer. IRDAI has mentioned multiple options to calculate the amount to be insured. Also the sum insured may vary depending upon the type of vehicle. The changes recommended are:

Changes in amount insured – To simplify the calculation of depreciation and amount insured, the working group by IRDAI has suggested to settle for a vehicle age-based method. The latest draft says that the amount insured for new cars up to 3 years will be based on the on-road vehicle cost, manufacturer add-ons and road tax/registration. This means depreciation for all new private vehicles will be waived of for the first 3 years. From 3rd year till 7th year a depreciation value of 40% to 60% will be applicable according to the car’s age. After 7th year the car owner and insurer can have a bilateral agreement on application of depreciation.  In short, we are benefitted with a moderate higher amount of insurance cover for our vehicle by this.

For private cars and 2-wheelers except for brand new ones, the amount insured should be calculated on the basis of manufacturer’s current price of the vehicle, value of the factory-fitted accessories and age of the vehicle. Similarly for two wheelers, the amount insured will range from 95% of the current price till the end of the first six months to 40% when it becomes 7 years old. 

For commercial vehicles, the insured amount should include the present invoice price, cost of body structure and value of factory-fitted add-ons. These are to be adjusted for depreciation ranging at 10% per year to a maximum of 75%. The amount insured is viable for claims like total loss, theft and productive total loss as proposed by the authority.

The working group has stated another standard procedure as an option besides the above schemes. It says, the amount insured will vary from 95% of the car’s present price till 6 months of purchase reducing every year and reaching to 30% when it is beyond 15 years old.

Likewise, ‘named driver’ policy implying insurer will pay a motor OD, if the particular person named as driver in the policy was driving during a claim, can be sold. But this plan is expected to have a cheaper premium.

The final proposal will be decided after 16th of this month soon after receiving stakeholder’s views and the new norms will be launched from February 2020.

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