IRDAI Withdraws Sale of Comprehensive Motor Insurance PolicyPosted on: June 22, 2020, by : Rakesh Sashmal
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.