The Insurance Regulatory and Development Authority of India has decided to withdraw long term packages offering third party insurance for 3 years and 5 years for four-wheelers and two-wheelers respectively, with effect from August 1, 2020.
The direction for providing 3 years or 5 years long term policies was issued by a bench comprising Justices Madan B Lokur and Deepak Gupta on July 24, 2018 in the case S Rajaseekaran v Union of India, with the aim of extending the coverage for vehicles.
The direction was issued on the basis of decisions taken by the Supreme Court Committee on Road Safety, headed by former SC judge Justice K. S Radhakrishnan. The bench noted that in a meeting held by Committee on 26th March, 2018, it was recorded that there are about 18 crore vehicles plying on the road and only about 6 crore vehicles have the mandatory third party cover, which meant that 66% of the vehicles were paying without third party insurance.
The IRDAI said that it has noticed some concerns with long term policies such as :
- Actuarial pricing has been a challenge for insurers for long term own damage cover.
- Distribution of package policies has its own challenges due to affordability factors for a large section of owners of vehicles.
- The possibility of forced selling due to financial interest being linked to loans is high.
- In case of deficiency of services, policy holders would be saddled with a long-term product with no flexibility to change options.
- The No Claim Bonus (NCB) structure is not uniform among insurers and this could lead to confusion and dissatisfaction amongst the policyholders.
Read the circular: