The insurance regulator has withdrawn multi-year plans covering own damage for new vehicles citing potential mis-selling and concerns over affordability.
From Aug. 1, insurers can't sell policies that offer protection for three and five years against own damage, according to a circular uploaded on the website of Insurance Regulatory and Development Authority on Tuesday. The multi-year protection against damage to vehicle was optional.
Three- and five-year third-party insurance remains mandatory for new vehicles, according to Bajaj Allianz General Insurance Co. It covers damage caused to an individual or property.
In August 2018, the regulator made multi-year third-party covers a must to curb the practice of uninsured vehicles plying on the roads. That followed a Supreme Court order. Along with that, IRDAI also allowed insurers to offer:
- Long-term package cover offering both motor third party and own damage insurance for three- or five-year tenure.
- A bundled cover offering three- or five-year term for motor third-party and a one-year term for own damage.
In a circular dated June 2019, the regulator asked insurers to offer standalone own damage covers for both old and new cars and two-wheelers.
The IRDAI, however, said in its latest circular that actuarial pricing for long-term own-damage policies has been a challenge for insurers. The distribution of package policies due to affordability concerns for a large section of vehicle owners was another issue, it said.
The regulator also highlighted the possibility of forced selling led by financial interest such as being linked to loans is high. It also cited absence of flexibility to policyholders to change options in case of deficiency in services and the need to wait for the term of the policy to claim no-claims bonus as factors to scrap the multi-year covers.
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