Attractive add-ons for the road

Theoretically, a car that doesn't have at least basic, third-party motor insurance is not allowed on the roads. However, like most other laws, this one too is subverted on a daily basis. Now, the Insurance Regulatory and Development Authority (Irda) is working on a project under which all motor insurance companies will be required to furnish policy details to a central database. The traffic police would be able to access this information and verify the insurance status of a vehicle. This is expected to ensure that all cars have valid insurance.

This, however, is only part of the problem. What about the times you forget to pay the premium to renew a policy or cannot afford it in a particular month and forget about it subsequently? One of the reasons we find ourselves unable to pay the premium is because it's high—a bad deal that we accepted blindly. According to the JD Power survey held in 2009, nearly 70 per cent Indians admitted to having purchased their auto insurance policies on the recommendation of friends, family or the vehicle dealer. Chances are that you'll end up with a more expensive deal, especially when it comes to renewing your policy. Shopping around could easily save you Rs 1,000-2,000 a year, maybe more. Two people with the same driving history and seeking an equal cover from different insurers are often quoted varying premiums. One reason for this disparity is competition. Motor insurance is the largest general insurance segment and accounts for nearly 44 per cent of the total non-life premium in India. The complexity of factors used to evaluate premiums also compounds matters. Till recently, most insurers sorted customers in four or five pricing tiers, based on age, area of residence, driving record, etc. But, gradually, hundreds of other variables have been added to the mix and since each insurer interprets these variables differently, the premium is bound to vary widely.

Getting the best deal involves more than a diligent comparison of rates. Doing your homework, say, on how depreciation affects the sum assured, will give you a lot of negotiating room. Similarly, being aware of the no-claims bonus that you are entitled to helps when you want to carry forward the discount to a new insurer. For the record, it varies from 20 per cent, if no claim is made during the preceding year of insurance, to 50 per cent, in case no claim is made for five consecutive years.

You also need to look out for city coverage ceilings or time and cost limits worked into the fine print of your policy. You don't want any nasty surprises on the road. A fool-proof way to guarantee a comprehensive insurance is to buy add-on covers. After Irda gave its nod to this concept last year, insurers have been busy rolling out an array of add-ons, ranging from depreciation waiver and key replacement reimbursement to accidental death benefit and medical expenses reimbursement. Says Gaurav Garg, managing director and CEO, Tata AIG: "These add-ons provide extra protection, which is currently not available under a standard motor insurance policy." The emergency assistance cover alone provides you with key lock assistance, battery jumpstart, carting fuel, stepney replacement and a towing facility. At present, such covers are offered only by a few companies like Tata AIG, Future Generali, Bharti AXA, Iffco-Tokio and Cholamandalam. Some insurers also offer services after an accident, such as arranging your return home or reimbursing a hotel stay till the formalities are sorted out.According to experts, you should base the decision to pick up such add-ons on factors such as the age and segment of your vehicle. Consider the cover for a no-claim bonus. This ensures that you don't lose the benefit even after making a claim. "Usually high-end car owners, who shell out a huge premium, do not make claims for Rs 10,000-20,000 for fear of losing the bonus. But now they can do so without any worries," says Darvesh Panchal, vice-president, Prudent Insurance Brokers. However, insurers extend this benefit only to the repair of glass, fibre, plastic and rubber parts, where the depreciated equivalent value of the part is paid and the no-claim benefit is retained by the insured. If the parts are replaced completely, the owner has to foot the remaining bill.New car purchasers stand to gain from the return to invoice addon, which covers the difference between the invoice price and your claim in the case of total loss (where the repair cost exceeds 75 per cent of the insured value). Here's how it works. For a car that costs Rs 5 lakh, the addition of registration charges will bring your invoice price to Rs 5.2 lakh. However, your car will be insured at the showroom price, which depreciates to Rs 4.75 lakh in the first six months. In case of total loss, the add-on will allow you to be compensated for the remaining Rs 45,000. If an accident occurs in the second year, when the sum insured reduces to Rs 4 lakh, the reimbursed amount will be Rs 1 lakh. "For bigger cars, which involve higher registration charges and tax, this difference is more apparent," says Panchal.

Do these add-ons, mostly available as a package deal, make financial sense? For instance, if you opt for a Tata AIG Gold Plan for a car costing Rs 5 lakh, you are entitled to three covers—personal luggage loss, key loss cover and emergency transport expenses. For this, you'll have to shell out an annual premium of Rs 440, while the basic comprehensive policy will cost around Rs 12,000. If you want a depreciation waiver benefit too, the add-on cost rises to Rs 1,696. A daily allowance cover will take the add-on premium to around Rs 2,000. In the past few years, basic premiums have come down substantially due to de-tariffing. So it doesn't pinch if one has to shell out a marginally higher amount for the relevant add-ons.

With such innovative bundled products and better services, this long neglected sector is getting a facelift. If you plan to capitalise on it, you'd better hurry: basic motor insurance policy rates are likely to harden at least by 10 per cent by 2010-11.