- IRDAI withdraws 3-year & 5-year insurance policy plans
- The withdrawal will be effective from August 1, 2020
- The long-term cover was introduced in September 2018
The Insurance Regulatory and Development Authority of India (IRDAI) officially released a circular mentioning the withdrawal of long-term motor insurance package plans, including third party insurance as well as own damage. This will come into effect on August 1, 2020. The Insurance Regulatory Authority decided to withdraw the long-term insurance package after noticing several issues and concerns related to the performance of these policies. Some of the reasons that compelled the organization to take this step are challenges in actuarial prices (estimate of the expected value) for long-term damage policies, difficulties in distributing of policies, an expensive proposition, and a possibility of owners selling their vehicles due to financial reasons or default in loans.
Withdrawal of long-term package plans, including third-party insurance and own damage, will be effective from August 1, 2020.
Long-term insurance cover was introduced in September 2018, after the Supreme Court ruling wherein the general insurers were directed to issue only three-year motor third-party policies for new cars and two-wheelers. In addition, the Insurance Authority has directed the general insurers to provide a long-term policy that includes their own damage and third party’ damages for a period of three or five years or one year.
The body further stated that customers with such policies would be burdened with the same insurer if they get deficient service and calculation of no claim bonus (NCB) is not uniform, which will result in confusion among policyholders. IRDAI also asked the insurers to provide standalone own damage insurance for vehicles from September 1, 2019, as the third-party portion was already covered under the three- or five-years policy.
With coronavirus pandemic and the lockdown, sales of vehicles have plunged and in turn, the revenue for the insurance providers has fallen too. Pulling the policy out of a long-term insurance package is likely to benefit customers, like the fact that the on-road prices of the vehicles will become much cheaper. This is expected to prompt the customers to purchase new vehicles, as the automobile sales are hitting the rock bottom.
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