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Driving down your auto premium

Chandralekha Mukerji        Print Edition: August 7, 2011

The running cost of a vehicle today is defi nitely higher than the day you bought it. And don't expect it to go down in a hurry. Along with hikes in fuel prices, you will now have to pay more to insure your vehicle as well. The Insurance Regulatory and Development Authority, or IRDA, has fi nally acted on the general insurance industry's long-standing demand for a revision of third party motor insurance premiums. The new rate structure, which IRDA released in April, has proposed a 68 per cent rise in premium rates for commercial vehicles, and a 10 per cent rise for private ones. "The thirdparty loss ratio [claims to premium paid] for private vehicles is above 100 per cent and the hike in premium rates will give some relief to insurers," says K.G. Krishnamoorthy Rao, MD and CEO, Future Generali India Insurance.

Moreover, there is a strong possibility that car insurance costs may go up further if insurers raise 'own-damage' premium rates. "Premiums for own-damage covers are already market-determined and so no change is expected immediately," says Karan Chopra, head of retail business at HDFC ERGO General Insurance.

"However, if third-party premiums consistently remain unprofi table, there may be an increase in premiums on the own-damage cover in an attempt to make up for the shortfall," he adds. Even then, it is unwise to skip 'own-damage' cover, which pays for damages in a fi re, earthquakes, fl oods, storms, burglary and terrorist acts. Though your car insurance bill is bound to swell, the best thing to do is to evaluate your motor cover, if necessary plan it again and ensure that you get a good deal.

Premium calculation
Let us start by understanding how your premium is calculated. "Any aspect of risk which can be linked to a loss and has suffi cient and credible data establishing this link, can be chosen as a rating factor," says Gaurav D. Garg, MD and CEO, Tata AIG General Insurance.

There are some things that all insurers consider before setting the premium rate. "The risks can be largely grouped under four basic categories - vehicle-related (the make, fuel type, engine capacity), locationrelated (place of registration), experience-related (your claims history) and driver-related (age, profession)," says Chopra of HDFC ERGO. Modifications such as fi tting alloy wheels or a CD player, will also alter the size of the cover. Besides, the locality you live in also affects the premium charged. At the time of renewal, it is predominantly the age of the vehicle that determines your cover - the insured declared value, or IDV, and the premium you pay.

Based on the years of use, depreciation is applied to the ex-showroom price to calculate the IDV (see Calculating the Cover). This is in case of vehicles up to fi ve years old. For vehicles older than this, their market value is taken as the IDV.

Discount search

While most people are eager to avail of the no-claims bonuses, they often miss smaller discounts, which can add up to a substantial amount. "All comprehensive policies offer a reward for a good claims history and the discount on the premium that can be as much as 50 per cent of the own-damage premium," says K.N. Murali, Senior Vice President, Motor Vertical, Bharti AXA General Insurance.

If you have a good record of claims-free driving, consider opting for a higher 'voluntary deductible', an amount you would need to pay before the insurer contributes its part of the claim. This reduces your premium. Insurance companies typically allow you to choose between Rs 1,500 and Rs 15,000. Since the insurer is not going to pay you this amount, it will offer you a suitable discount on the premium charged.

To add on or not
Adding riders to a regular motor cover will add to the premium as well. If you already have personal accident cover or your driver has a life insurance cover, buying similar policies will only be a waste of money. But if you don't have these covers, it would be wise to bundle these products rather than take separate covers. "Besides, there are specifi c riders, such as cover for CNG/LPG kits, for copassengers, and for key replacement costs, which customers should consider as additional cushions," says Garg of Tata AIG.

Depreciation deductions are sometimes as high as 50 per cent. The solution to avoid this is a 'zero depreciation' rider. But these come at a cost and you may have to pay a higher premium for this benefi t. However, Joydeep Roy, Chief Executive, L&T General Insurance, says: "The depreciation in the value of the car due to usage is also refl ected at the time of the claim. In such cases, a 'nil depreciation rider' will be a useful protection."

Finally, do not forget to compare prices before buying. There will always be a difference in prices because companies specialise in covering different types of risk and are able to give better rates and discounts.

Courtesy: Money Today 

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