How the new bumper-to-bumper vehicle insurance rule will affect consumers

The law was drafted and brought to protect the interests of a third party who suffers injury or property damage due to an accident involving an insured vehicle. However, own damage insurance cover is optional, whereas personal accident cover is required only for the owner-driver of the car.

In this excerpt, we will see how the new bumper-to-bumper insurance of the vehicle will affect the wallet of the consumer.

What is New Vehicle Insurance Order?

The Madras High Court has ruled that all vehicles sold in Tamil Nadu after September 1, 2021, must be sold with a mandatory bumper-to-bumper insurance cover every year in addition to personal accident cover for all occupants, including the owner . , driver, and passengers of the vehicle for five straight years.

Ankit Aggarwal, CEO and Co-Founder, InsuranceDekho.com said, “With this decision, the vehicle owners are expected to take care of their own as well as the interests of the driver, passengers and third parties. It can also avoid unwanted liability. At present, bumper to bumper is optional for the vehicle owner, and there is a provision to extend it beyond five years.”

Pranav Srivastava, Partner, Phoenix Legal, said that High Courts in India, when exercising writ jurisdiction, have extra-territorial/all-India powers, i.e., direct, order or writ to persons, authorities or governments located outside. has the power to issue. Territorial jurisdiction of the said Courts. “However, in the present case, the orders have been passed by the High Court in Madras exercising civil appellate jurisdiction and not writ jurisdiction. Further, the order directs the Transport Department at Chennai only to ensure compliance and streamline transport. The Department, Chennai and the Joint Transport Commissioner, Chennai, as parties. Therefore, in our view, the orders will not have pan-India application and will be applicable only to the State of Tamil Nadu,” Srivastava said.

Impact of compulsory bumper-to-bumper insurance on customers

The order pronounced by the court will directly affect the insurance sector as well as customers in Tamil Nadu.

“To understand the impact, one first needs to know the importance of motor insurance. It is the second largest business segment of the insurance industry which contributes to about 40% of the total premiums collected by general insurance companies, with about 41 Part of the premium comes from insurance cover for own damages which has been mandated by the court,” Agarwal said.

“Also, at present, around 65-70% of two-wheelers plying on roads avoid possession of a self-harm policy by the second year, while about 20% to 30% of four-wheeler owners refrain from owning by the fourth year. of damage policy. This shows that the scope of coverage is under this own damage insurance cover,” he said.

Industry experts estimate that the new rule could increase the cost of vehicle purchase by 8-10%. For bikes, it can increase ₹5,000-6,000 for entry-level cars ₹50,000, and SUVs above Rs 2 lakh. With the increase in prices, customers may have to pay Rs 1,000 more for two-wheelers and Rs 10,000-12,000 for four-wheelers. According to car dealers and experts, overall this order will make the prices of the car costlier by Rs 50,000 to Rs 5 lakh.

Agarwal said, “Currently, the cost of a one-year insurance policy is around 3% of the value of the car. But, after the court’s decision, car dealers will have to sell the vehicle with a mandatory bumper-to-bumper insurance of 5 years There will be an increase in vehicle prices which can bring a huge upfront cost for the customers.”

The home insurance sector is adopting measures to provide flexibility to customers to ease their insurance experience. Many companies offer payment options on a per-month basis to the policy to help customers purchase a policy without impacting their budget, but the amended law could affect monthly payments as well. The move is expected to be counterproductive and may curb car and bike sales as it may put additional burden on the pockets of the customers.

Some car marketers believe that the decision may also go against the overall perspective of the auto sector, while some feel that in such a scenario, the Insurance Regulatory and Development Authority of India (IRDAI) is required to revise the premium structure to provide some relief. needed. Customers did this by ordering the withdrawal of mandatory long-term insurance for new vehicles in 2020. Aggarwal said, “Based on the facts, it is recognized that this decision may hit the customer’s pocket badly and may alter or delay their decision to buy a vehicle, leading to trouble for the auto industry.” Is.”