New Delhi: Insurance regulator IRDAI has decided to withdraw long-term third party insurance cover of three/five years for new cars and two-wheelers with effect from August 1, 2020, thus making insurance cover more affordable for vehicle owners.
The Insurance Regulatory and Development Authority of India (IRDAI) on Tuesday said it was withdrawing the scheme in view of concerns expressed by stakeholders over the implementation of long-term insurance cover package which was introduced in September 2018 in wake of the decision of the Supreme Court in a matter.
In a circular, IRDAI said it has reviewed the various options of long-term and annual motor insurance covers now being offered to the prospects/policyholders pertaining to own damage.
After a careful examination of the performance of long-term package covers and concerns relating to its implementation, "the Authority has decided to withdraw long term package covers offered for three years or five years for new cars and new two-wheelers respectively with effect from August 1, 2020", it said.
Regarding the concerns on long-term package, IRDAI said actuarial pricing has been a challenge for insurers for long-term own damage cover.
Also, "distribution of package policies has its challenges due to affordability factors for a large section of owners of vehicles," it said.
It also noted that the possibility of forced selling due to financial interest/being linked to loans is high and in case of deficiency in services, policyholders would be saddled with a long-term product with no flexibility to change options.
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Besides, the no claim bonus (NCB) structure is not uniform among insurers and this could lead to confusion and dissatisfaction amongst the policyholders.
Pursuant to the decision of Supreme Court in a matter, IRDAI had directed all general insurers (except the standalone health insurers and specialised insurers), to offer only three-year Motor Third Party insurance policies for new cars and five year Motor Third Party insurance policies for new two-wheelers with effect from September 1, 2018.
The long-term package cover offering both Motor Third Party Insurance and Own Damage Insurance was introduced from September 2018.
With the introduction of the-long term covers, general insurers were asked to provide two options to choose from.
They were asked to either offer 'long term package offering both Motor Third Party Insurance and Own Damage Insurance' for three years or five years as the case may be' or 'a bundled cover with a three-year/five-year for third party component and a one-year term for the own damage'.
Insurers to disclose their approach on coverage for people with mental illness, HIV
IRDAI has also asked all insurers to make public their underwriting philosophy and approach with regard to insurance coverage for persons with disabilities, HIV/AIDS and mental illness, a move aimed at improving transparency.
The insurers have been asked to publish the information on their respective website.
All insurers (life, general and health ) have to comply with the directions by October 1, 2020, the Insurance Regulatory and Development Authority of India (IRDAI) said in a circular.
IRDAI said it is considered essential that the targeted population of every insurer shall have complete information on the philosophy that insurers adopt while complying with the provisions.
As per IRDAI's instructions, all insurance companies have to disclose underwriting philosophy of offering insurance coverage to persons with disabilities and people affected with HIV/AIDS and mental illness.
As per the provisions of IRDAI (Health Insurance) Regulations, 2016, every insurer is required to evolve a health insurance underwriting policy covering approach and aspects relating to offering insurance coverage not only to standard lives but also to substandard lives.
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Insurance companies are also required to comply with the provisions of the HIV and AIDS Prevention Control Act, 2017 and Mental Healthcare Act, 2017.
Meanwhile, the regulator has also asked all insurers to necessarily obtain Legal Entity Identifier (LEI) code by July 31, 2020.
LEI is a 20-character unique identity code assigned to entities who are parties to a financial transaction. It is a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis.
The Reserve Bank of India has implemented the requirement of LEI in OTC derivatives markets, banking sector and government securities market in a phased manner.
LEI can be obtained from Legal Entity Identifier India Ltd. IRDAi further asked the insurers to advise their existing corporate borrowers having total exposure of Rs 50 crore and above, who have not obtained LEI till now, to obtain it by June 30, 2020.
Insurers have also been asked not to grant renewal/enhancement of credit facilities if borrowers do not obtain LEI. Also, insurers cannot sanction new loans if the borrowers do not have LEI.
(PTI Report)
