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How the new bumper vehicle insurance rule will impact consumers


The law was drafted and enforced to safeguard the interests of a third party who suffers injury or property damage due to an accident involving an insured vehicle. However, damage insurance coverage is optional, while personal accident coverage is only necessary for the owner-driver of the car.

In this article, we’ll take a look at how the new vehicle bumper insurance will affect the consumer’s wallet?

What is the new vehicle insurance decree?

The Madras District Court, in a judgment, said all vehicles sold in Tamil Nadu after September 1, 2021 must be sold with mandatory bumper-to-bumper insurance coverage every year in addition to individual accident coverage for all occupants, including the owner. , driver and passengers of the vehicle for five consecutive years.

Ankit Agrawal, CEO and co-founder of InsuranceDekho.com, said: “The decision should ensure that vehicle owners consider the interests of the driver, passengers and third parties with themselves. the owner of a vehicle since at present the bumper to bumper is optional, and there are plans to extend it beyond five years. “

Phoenix Legal partner Pranav Srivastava said Indian high courts, when exercising judicial jurisdiction, have extraterritorial / pan-Indian powers, i.e. the power to issue instructions, orders or writs to persons, authorities or governments outside the territorial jurisdiction of such courts. “However, in this case the orders were made by the Madras High Court of Justice while exercising civil appellate jurisdiction and not writs jurisdiction. Further, the orders only direct the Department of Transportation. of Chennai to ensure compliance and Department, Chennai and the Joint Transport Commissioner, Chennai, as parties. Therefore, in our opinion, the ordinances will not have pan-Indian application and will only apply to the state of Tamil Nadu, ”Srivastava said.

Impact of mandatory bumper-to-bumper insurance on customers

The court order will have a direct impact on the insurance industry as well as on customers in Tamil Nadu.

“To understand the effect, you first need to know the importance of auto insurance. It is the second largest business segment of the insurance industry which contributes around 40% of the total premium collected by non-life insurance companies, of which around 41% of the premium share comes from the damage insurance coverage that the court made mandatory, ”Agrawal said.

“Moreover, at present, nearly 65 to 70% of two-wheelers traveling on the roads avoid the possession of a damages policy from the second year, while around 20 to 30% of four-wheelers tend to shy away from possession. a damage insurance policy in the fourth year. It shows that the extent of the coverage is in this damage insurance coverage, ”he said.

Industry experts predict that the new rule could increase the cost of vehicle purchases by 8-10%. For bicycles, this can increase by ??5,000-6,000, for entry-level cars by ??50,000, and SUVs over Rs2 lakh. Rising prices can cause customers to pay up to Rs 1,000 more as a down payment for two-wheelers, Rs 10,000 to 12,000 more for four-wheelers. Overall, this order will make the prices of the cars more expensive by Rs 50,000 to Rs 5 Lakh, according to car dealers and experts.

Agrawal said: “Currently, the price of a one-year insurance policy costs around 3% of the car’s value. But, after the court ruling, car dealers will have to sell vehicles with car insurance. – 5 year mandatory bumper shocks that will increase vehicle prices, which can result in massive upfront expense for customers. “

National insurance sectors have adopted measures to provide flexibility to clients to facilitate their insurance experience. Many companies offer policy-based monthly payment options to help customers purchase a policy without affecting their budget, but the revised law may also impact monthly payments. This move is expected to be counterproductive and could end up reducing the volume of sales of cars and bicycles, as it can increase the pockets of customers.

Some automotive marketers speculate that the move could also run counter to the holistic perspective of the automotive industry, while a few believe that in such a scenario, the Insurance Regulatory and Development Authority (IRDAI) should change the premium structure to bring some relief to customers as it did in 2020 by ordering the end of compulsory long-term insurance for new vehicles. “Based on the facts, it is validated that this decision can seriously hit the pockets of the customer and could change or delay their vehicle purchasing decision, which could cause problems for the auto industry,” Agrawal said.

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