Regulator halts sale of long term motor insurance plans

The insurance regulator has decided to withdraw long term motor insurance plans offered for three years or five years for new cars and new two­-wheelers respectively with effect from 1 August 2020.The withdrawal means that new vehicle buyers will not be given the option to select long-term motor insurance.

The long-term plans offering both motor third party liability (MTPL) insurance and own damage (OD) insurance were introduced in September 2018, following a Supreme Court ruling.

The IRDAI said in a statement that it had decided to withdraw the plans after concerns were raised over the implementation of long-term insurance cover. The regulator said that the factors for its decision included:

Actuarial pricing had been a challenge for insurers for long-term own damage cover

Distribution of the plans faced challenges due to affordability factors for a large section of vehicle owners

The possibility is high of forced selling due to interest on vehicle loans

In case of deficiency in services, policyholders would be saddled with a long-term product with no flexibility to change options

The no claim bonus (NCB) structure is not uniform among insurers and this could lead to confusion and dissatisfaction amongst the policyholders.

In 2018, the Supreme Court had ordered insurers to offer long-term motor policies. General insurers were advised to provide customers with two options: (i) Long term package cover offering both MTPL and OD insurance for three years or five years as the case may be. (ii). A bundled cover with a three-year or five-year term (as applicable) for the third party component and a one-year term for OD.