General insurers in India are facing challenges in implementing the Supreme Court order asking them to issue three-year and five-year insurance policies for new four-wheelers and two-wheelers, respectively. General insurers have recommended bifurcating the mandatory third-party insurance cover and the optional ‘own-damage’, or comprehensive insurance cover, which compensates for vehicle damage.
According to sources the key challenge would be in pricing the long-term cover given current regulations and practices. Currently, insurance commission is paid up-front. Additionally, capital has to be set aside based on premium collected while the advance premium cannot be recognised as earnings. This will increase the capital requirements for non-life companies. The price of third-party cover is revised every year, depending on compensation awards in the previous year. Since awards go up every year the absence of annual revision would hurt insurers.
Digit Insurance chairman Kamesh Goyal said, “On the one hand, the SC has asked insurers to ask for a PUC vehicles on Indian roads. Goyal has suggested that instead of putting the onus of enforcement on the insurance companies, insurers could pay the distribution charges to police, who could issue on-the-spot policies to those caught without mandatory cover.
If insurance regulator IRDAI were to allow bifurcation of the motor insurance into a third-party and a stand-alone comprehensive cover, it would require extensive changes to the insurers’ IT systems. Additionally, companies said that getting the products in place and IT systems changed in one month will not be possible.