IRDAI Withdraws Sale of Comprehensive Motor Insurance Policy
The Insurance Regulatory and Development Authority of India (IRDAI) on Tuesday withdrew the permission given to general insurance companies regarding the sale of long-term comprehensive motor insurance policies for new cars and new two-wheelers. As per the direction, the insurance companies will not offer long-term comprehensive motor insurance policies with effect from August 01, 2020.
A comprehensive motor insurance policy refers to a package plan which has two elements namely Third party (TP) cover and Own-Damage (OD) cover. In September 2018, the regulator had mandated long-term third party insurance policies of 3 years and 5 years for cars and two-wheelers respectively.
After the 2018 directive, the insurance providers could sell the following two kinds of motor insurance policies:
- Long-term Comprehensive Motor Insurance Plan: This contains a 3-year TP + 3-year OD cover for new cars and a 5-year TP + 5-year OD cover for new two-wheelers.
- Bundled Motor Insurance Plan: This contains a 3-year TP + 1-year OD cover for new cars and a 5-year TP + 1-year OD cover for new two-wheelers.
Now, after the latest directive issued by the IRDAI, general insurance companies will not be allowed to offer long-term comprehensive motor insurance policies. However, the general insurance companies remain allowed to sell bundled motor insurance policies containing 3-year TP + 1-year OD policy for new cars and 5-year TP + 1-year OD policy for new two-wheelers.
Please note that long-term third party (TP) motor insurance policies continue to remain mandatory for 3 years and 5 years for new cars and new two-wheelers respectively.
The latest decision means that now you can buy a bundled motor insurance policy containing long-term TP cover but you will be required to renew its OD component every year. The insurance companies also continue to offer standalone own-damage (OD) motor insurance policies.
Why IRDAI Withdrew Long-term Comprehensive Motor Insurance Policies
The IRDAI withdrew the permission for the sale of long-term comprehensive motor insurance policies citing the following reasons:
- Affordability of long-term policies
- Potential mis-selling
- Confinement of policyholders to the same insurer
- Non-uniformity in the No Claim Bonus (NCB) structure
The move has been termed ‘welcoming’ by the industry experts as it will offer more convenience and flexibility to the policyholders.