Madras High Court order to make five year motor cover mandatory could push vehicle costs higher

The Madras High Court ruled to make five-year ‘bumper to bumper’ insurance mandatory, a decision that will push vehicle costs 8-10% higher.

This decision will pose an issue for an industry that’s just coming out of the pandemic, said Vinkesh Gulati, President, Federation of Automobile Dealers Association (FADA). According to Gulati, it pushes up the cost of motorcycles and scooters by Rs 5000-6000, entry level cars by Rs 50,000 and mid-market SUVs by more than Rs two lakh.

The Insurance Regulatory and Development Authority (IRDAI), withdrew mandatory long-term insurance for new vehicles in August 2020.

But, now, as per the High Court ruling, a dealer has to sell vehicles bundled with five-year insurance, which ends up being a huge upfront cost for customers, says Ravi Bhatia, JATO Dynamics‘ President.

Bhatia added that in an insurance industry that’s driving consumers to flexible monthly payments depending on usage, this step might decelerate sales.

The auto industry needs a ‘holistic view’ that balances consumer interest, safety, acquisition cost, environment and emission issues, job creation and manufacturing, according to Rajeev Chaba, CEO and President of MG Motor India There cannot be ‘exceptional growth’ without that approach, Chaba added.

Insurers aren’t all of the same opinion on whether comprehensive cover must be mandatory. One school of thought says comprehensive covers are voluntary contracts between two parties and can not be forced upon the customer. Another says mandatory cover might guarantee better insurance penetration.

“The insurance industry has not been asked to do anything and we will continue to sell policies. Even today, 99% new vehicles opt for comprehensive cover,” said an official, highlighting that this order might be directed at industry officials to ensure compliance.

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Ajay Jadeja of Digit Insurance raises a concern that most vehicle owners do not know that if they buy personal accident cover with one car, it’s applicable with all the cars they own. Dealerships must have boards giving users information on accidental insurance, Jadeja said.

As per the High Court order, “After September 1, 2021, it is mandatory for coverage of bumper-to-bumper insurance every year, in addition to covering the driver, passengers and owner of the vehicle, for a period of five years.”

Insurers aren’t yet sure if that would mean premium for five years being collected upfront. There is also confusion over the Court’s usage of bumper-to-bumper insurance, which can either mean comprehensive insurance or a zero depreciation policy.



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