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Driving Down Your Auto Premium

Chandralekha Mukerji        Print Edition: July 2011

Today, the running cost of a vehicle is definitely higher than the day you bought it. Don't expect it to go down in a hurry either. Along with regular hikes in fuel prices, you will now have to pay more to insure your vehicle as well.

The Insurance Regulatory and Development Authority (Irda) has finally acted on the general insurance industry's long-standing demand for a revision of third-party motor insurance premiums. The new rate structure for this mandatory cover, released by Irda in the last week of April, has proposed a 68% rise in premium rates for commercial vehicles, and a 10% rise for private vehicles. Apart from this, the regulator has also decided to review these rates every year.

"The third-party loss ratio (claims to premium paid) for even private vehicles is above 100% and the hike in premium rates will give some relief to insurers," says K.G. Krishnamoorthy Rao, MD & CEO, Future Generali India Insurance.

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Moreover, there is a strong possibility that car insurance costs might go up further if insurers raise 'own-damage' premium rates as well. "Premiums for own-damage covers are already market-determined and so no change is expected immediately. However, if third-party premiums consistently remain unprofitable, there may be an increase in premiums on the owndamage cover in an attempt to make up for the shortfall," says Karan Chopra, business head, Retail Business Group, HDFC ERGO General Insurance.

Even so, it is unwise to skip 'own-damage' cover, which pays for damages to your vehicle in a fire, earthquakes, floods, storms as well as burglary and even terror acts.

HOW TO AVOID REJECTIONS
> Read policy documents carefully and understand your cover.
> Fill out the claim form carefully.
> Make sure there is no faulty information or mistakes in the declarations.
> Strictly adhere to the policy norms and guidelines.
> Ensure your vehicle is always driven by a valid licence holder.
> Report any accident or loss immediately to the insurer.
> Do not club costs of old damages with a fresh claim.
> Avoid policy lapses.
> Follow the claim procedures, submit all the necessary documents.

WHAT IS NOT COVERED
> Normal wear and tear and general ageing of the vehicle.
> Mechanical or electrical breakdown.
> Damage to or by a person driving any vehicle or car without a valid licence.
> Damage to or by a person driving the insured vehicle under the influence of drugs or liquor.
> Loss or damage due to war, mutiny or nuclear risk.
> Use of vehicle not in accordance with 'limitations as to use' (eg. private car being used as a taxi)
> Claims arising out of contractual liability.

CUT YOUR PREMIUM BY...

> Accumulating no-claims bonus.
> Opting for a high voluntary excess amount.
> Installing safety devices in your vehicle.
> Getting an automobile association membership.
> Applying for a loyalty discount.
So, though your car insurance bill is bound to swell, the best thing to do is to evaluate your motor cover (especially, if the renewal date is near), re-shop if necessary 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 sufficient and credible data establishing this link, can be chosen as a rating factor," says Gaurav Garg, MD & CEO, Tata AIG General Insurance. However, there are some things that all insurers consider before setting the exact premium rate.

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"While the underwriting parameters used vary from insurer to insurer, the risks can be largely grouped under four basic categories- vehicle-related (the make, fuel type, engine capacity, etc., of the vehicle), location-related (place of registration), experience-related (your claims history) and driverrelated (your age, profession, etc.)," says Chopra.

Any modifications done to the vehicle, such as fitting alloy wheels or a CD player, will also alter the size of the cover. Apart from all this, the locality you live in also affects the premium charged.

"If you are staying in an urban area, near the highway or a densely-populated locale, your premium will rise. If theft or crime rates are higher in your neighbourhood, it also adds to premium rates," informs K.N. Murali, senior VP and head, Motor Vertical, Bharti AXA General Insurance.

At the time of renewal, it is, predominantly, the age of the vehicle that determines your cover-the insured declared value (IDV) and the premium you pay. Based on the years of use, depreciation or reduction, is applied to the ex-showroom price to calculate the IDV (see Calculating the Cover). This is in case of vehicles up to five years old. For vehicles older than this, their market value is taken as the IDV.

DISCOUNT SEARCH

While most of us are eager to avail of the no-claims bonuses, we often miss several smaller discounts, which together can add up to a substantial amount. "All comprehensive policies offer a reward for a good claims history, with a discount on the premium that can be as much as 50% of the own-damage premium," informs Murali.

"In addition, concessions are available in case the customer has a valid membership of a recognised automobile association, such as Automobile Association of Upper India, Automobile Association of Eastern India, Western India Automobile Association and Automobile Association of Southern India. Moreover, installation of antitheft and safety devices approved by the Automotive Research Association of India will also get you discounts," he adds.

If you have an extremely good record of claims-free driving, consider opting for a higher 'voluntary deductible' amount, an amount you would need to pay before the insurer contributes his part of the claim. This reduces your premium.

Calculating the Cover: The depreciation in the value of the vehicle goes up in relation to the age of the vehicle
Insurance companies typically allow you to choose between Rs 1,500-Rs 15,000. Since the insurer is not going to pay you this amount, the company will offer you a suitable discount on the premium charged. Also, check for a loyalty discount if you are renewing your policy with your current insurance firm.

Professionals, such as charted accountants, doctors, defence personnel and government employees may get special discounts.

Avoid policy lapses. This could disqualify you from availing the discounts you were otherwise eligible for.

TO ADD-ON OR NOT TO ADD-ON

Adding riders to a regular motor cover will add to the premium as well. If you already have, say, a personal accident cover or your driver has sufficient life insurance, buying similar riders will only be a duplication and, therefore, a waste of your money. But, on the other hand, if you don't have these covers it will be wise to bundle these products than taking separate covers.

The new structure will see a 68% rise in premium rates for commercial vehicles and a 10% rise for private vehicles.
"Beside these, there are specific riders, such as cover for CNG/LPG kits installed in a car, for co-passengers, key replacement costs, return to invoice (ensures a pay back if there is a shortfall in the insurance payout compared with the invoice price of the car) etc., which customers should consider as additional cushions," says Garg. In fact, the depreciation deductions are sometimes as high as 50%.

The solution to avoiding this can be a 'zero depreciation' rider. But these come at a cost and you might have to pay a higher premium for this benefit. However, Joydeep Roy, chief executive, L&T General Insurance is in favour of it.

He says, "An insurance policy is all about being adequately covered for eventualities. The depreciation in value of the car, due to usage is also reflected at the time of a claim. In such cases a 'nil depreciation rider' will prove to be a useful protection."

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

SWITCHING INSURERS

Switching auto insurance
Not satisfied with your insurer? Switching your insurer is a simple process. You will need the policy renewal notice from your current insurer along with the complete proposal form. However, try not to switch mid-term as you will lose out on many benefits.

"The customer will not be eligible for a no claims bonus, which is calculated on a yearly basis. Also, your insurer can charge penalties for cancelling the policy midway. But if the customer desires to cancel the policy mid-term, they have the freedom to do so," says K N Murali, senior VP and head, Motor Vertical, Bharti AXA General Insurance.

Therefore, it is best to switch at the time of renewals. But make sure that you buy a new policy first and then cancel the existing one and there isn't any gap between the date when your old policy expires and the commencement of the new policy date. If the old policy is cancelled even a few days before the new policy is obtained there will be a break in cover, which is not desirable. Also, do not forget to compare product features before switching. The online insurance product aggregators can be of help for this.

"Generally, all you need to do to cancel your auto insurance policy is to inform your insurance company in writing, specifying the date you want the policy to be cancelled and the reason for the cancellation along with proof of an alternate insurance policy," says Murali.

Do not forget to get a certificate from your present insurer for your no-claims bonus eligibility. Buy the policy from the new insurer before the expiry date of the existing policy to avoid a break in insurance cover for your vehicle.

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