The Motor Vehicle Act, 1988, mandates vehicle owners to get their vehicles insured with at least third-party liability motor insurance, if not a comprehensive motor insurance plan. Despite this mandate, around 75% of bikers have not insured their two-wheelers.
The biggest challenge after availing a motor insurance plan is to renew it each year. It is up to the insurer to decide if there should be a grace period for the renewal. If you fail to renew your motor insurance policy in time, you have to apply for a new policy. You will have to get your vehicle examined before availing the insurance. Worse, if your policy has lapsed say 3 months back, you will lose the no-claim bonus.
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Keeping these issues in mind and to widen their customer base, insurance companies started offering multi-year policies for two-wheelers. What about the four-wheelers? As of now, no such policies are offered to four-wheelers. Offering multi-year auto insurance policies for four-wheelers is not short of challenges. Nevertheless, this might change too.
Considering road safety, the Supreme Court requires third-party liability insurance to be made mandatory for 3 to 5 years, at the time of the sale of third-party insurance for two-wheelers and four-wheelers.
1. Third party liability
2. Own damage (OD) or Comprehensive Motor Insurance
As mentioned earlier, it is mandatory for all registered vehicles to have third-party liability cover in India. A third party liability covers liabilities/costs arising from damage caused to a third party and not to the insured or their vehicles. The premium for the motor insurance is fixed by IRDAI on a yearly basis.
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As of now, multi-year policies are offered to two-wheelers for up to 3 years. When vehicle owners get their vehicles insured, they get a policy certificate for a maximum of 3 years. Having a multi-year policy saves you from renewals each year. In case of a single-year policy, the insured remains uninsured for the period between the date of the policy lapse and the date of renewal.
A multi-year motor insurance policy has lower premiums for subsequent years. The premium for third-party liability is fixed at the beginning of the first year. Therefore, the insured escapes the annual third-party rate hikes in the subsequent years. Third party insurance is priced based on the previous years’ claim experiences. Thus, premiums of third-party insurance are revised each year.
The experience of multi-year policies for up to three years might help in offering five-year policies. But, this is not totally reliable as it is still a new product. The experience will only help after a few years.
Owing to a number of reasons like inflation and increasing numbers of court awards, claims in India have increased. This poses a difficulty in arriving at the right pricing for a multi-year policy.
Now that the Supreme Court has passed a directive, IRDAI, the insurance regulator, will order insurance companies to offer multi-year policies for four-wheelers too.
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