High Court directs IRDS to provide proposal facility in motor insurance policy

In a judgement, which would help provide speedy and enhanced compensation to motor vehicle owners killed in a road accident, the Lucknow bench of the Allahabad High Court has directed the IRDA to provide nomination facility in all motor policies.

A public interest litigation (PIL) was filed in Lucknow bench of Allahabad High Court, challenging the non availability of nomination facility in the personal accident policy which is sold compulsorily along with motor insurance policy to vehicle owners.

Advocate Dhruv Kumar in his petition said that July 2002, an additional premium of Rs 50 and Rs 100 is being charged under the Indian Motor Tariff from owners of the two wheeler and four wheelers for compulsory personal accident insurance for the sum insured of Rs 1 lac and Rs 2 lacs, respectively.

The policy covers accidental death of owner of the vehicle while driving or even traveling in the said vehicle. Click to apply Car Insurance

The petitioner said that since facility of nomination is not available on the policy document, the owner of the vehicle remains unaware of the accidental cover and even those who know their beneficiary has to obtain succession certificate from the court to get their claim which is not only expensive but also time consuming.

The Insurance Regulation and Development Authority (IRDA) opposed the petition on the ground that Sec 39 of the Insurance Act mandates nomination facility in only life policies and that there is no reference to personal accident policies.

Petitioner Dhruv Kumar submitted that a personal accident policy, similar to a life policy, also insures against the death of policyholders and hence, it too requires nomination facility.

The bench comprising of Chief Justice FI Rebello and Justice DK Arora did not appreciate that IRDA was not providing the nomination facility in motor policies and directed the IRDA to enforce the mandated regulation on insurance companies.

Drive your way to cheaper car premiums

The Insurance Regulatory and Development Authority's (Irda) decision to revise third-party insurance premium rates upwards is going to push up your car insurance costs. The new structure for charging third-party insurance premiums will be applicable to all new policies as well as the ones renewed on or after April 25. The move will lead to third-party insurance premium rates for private vehicles and two wheelers going up by up to 10%. What's more, the insurance regulator has also stated that henceforth, the premiums are to be reviewed and adjusted annually based on formula that has been arrived at. This formula takes into account parameters like average claims cost as well as the frequency of claims for each class of vehicle and cost inflation index for the year of review.

However, the insurers will have to honour the existing annual contracts in their current form till they expire. That is, if you have bought a new policy or renewed the existing one say in December 2010, you will not have to shell out additional premium as per the new schedule of charges. Since third-party liability cover is mandatory - even before a vehicle makes its way from the showroom to the road -you need to buy the cover and there's little you can do to reduce the premium, given the regulated charge structure. Then, if you are buying a comprehensive motor insurance policy, there are other customary parameters that come into play. These include age of the vehicle, price, engine capacity and the geographical zone, on which you have limited control. However, there are several other measures you can take to make sure that your total car insurance bill stays within manageable limits.

Prospective insurers may well need higher capital base

A spiring entrants to the insurance industry would now be required to start their ventures with a higher initial capital base than the prescribed level of Rs 100 crore.

At least two insurance companies that are expected to secure approvals for starting operations in the current financial year have increased their initial capital base to Rs 200-500 crore, after the Insurance Regulatory Development Authority’s (Irda) advised them do to so.

“Initially, we were considering starting the venture with Rs 100 crore, which is the minimum capital required. However, after analysing our business plans, Irda advised us to increase this to Rs 200 crore. So, we pumped in more than Rs 200 crore,” said an official of a financial company, which had already announced its plan to foray into the general insurance business.

Another official at a financial services company which plans to enter the life insurance business, said the company had raised the initial capital base to Rs 500 crore after consultations with the regulator.

According to the industry sources, though the regulator cannot force companies to bring in more capital, it can prescribe it, whenever required.

An Irda official said though the minimum capital required to start an insurance business is Rs 100 crore, the regulator prescribed the capital requirement based on the business plan of a company. “We have no intention to change the minimum capital requirement. However, if a company plans to expand very fast, then Rs 100 crore is obviously not enough. We also access the promoter’s financial health and then prescribe a capital level which, we feel, would be required to meet the solvency norms,” he said, adding if a company started a business with more capital, it gave additional comfort to customers.

“With the changes in regulations, margins have taken a hit. Hence, it is quite logical for the regulator to ask aspiring players to pump in more money,” said an industry expert.

The changes in regulations for unit-linked plans had resulted in the industry coming under pressure on profitability, both for life as well as non-life insurance companies.

Since September 2010, when the new norms for unit-linked plans were introduced, sales across the life insurance industry had taken a hit. In most cases, policy sales declined by 25-40 per cent.

According to industry experts, the new norms may also exert pressure on most companies recording underwriting profits in the life insurance industry.

The non-life insurance industry had reported underwriting losses in motor and health portfolios, which account for more than 65 per cent of the industry. While the loss ratio for car insurance was estimated at 150 per cent, for health plans, the loss ratio stood at 120-130 per cent.

Reasons for cancellation of an Insurance Policy

There has to be a very good reason for an Insurance company to cancel a policy. The top five reasons for having your policy cancelled are discussed below:
1. Failing to pay on time.
The first and most obvious reason for cancellation would be failing to pay or paying late. This applies to all types of insurance. Each state has rules governing when an insurance company may drop your policy. Grace periods will also vary depending on which line of insurance you purchase (health, auto, home, life) and which insurance company you choose. Some car insurance companies may seize the opportunity to drop you if you’re only a few days late – especially if you're habitually behind on payments. However, many insurers value your business and won't drop you if you're a few days late.
Advice - Pay your bills on time. This usually means your premium must be received by the due date. Dropping the payment in the mail on the due date may not be good enough. If you’re worried about being late on your payments, check with your insurance company about its grace period. If you've been cancelled by your car insurance company, it may require that you to pay the balance due for the full term before they reinstate your insurance.
2. Falsifying the truth.
If you knowingly tell lies to your insurance company, it has the right to cancel your policy. To an insurance company, it’s bad business to give you a lower rate for lying. For example, lying to your auto insurer about the number of miles you drive annually can be cause for cancellation. Some insurers may simply increase your car insurance rates for this particular lie, but they can also cancel your policy and refuse to pay your claim — assuming you provided inaccurate information intentionally.
Life insurance companies may also cancel your policy if you lie. For example, if you lie about your deep-sea diving hobby and then die during a dive, your life insurance company could deny your beneficiaries’ claim. Any lie caught within the two-year contestability period of a policy can provoke the insurer to scale down the death benefit or even rescind the policy, depending on state law.
Advice - When applying for any type of insurance ‘honesty is the best policy’.
3. Your driver’s license has been suspended or revoked during the policy period
If your auto insurance company finds out that your license has been suspended or revoked, it will cancel your policy. This rule also applies to other members of your household. For example, if you have a child listed on your policy who has had his or her license revoked/suspended, your insurance company may cancel your policy if you fail to disclose this information. Car insurance companies often check your DMV record (and that of other members of your household) at renewal time. They will also find out about a license suspension if the person in question is involved in a car accident.
Advice - If someone in your household experiences problems with their license, notify your insurer. Your policy will not be cancelled (unless you’re the culprit). Your insurer may simply exclude coverage for that person.
4. You ignoring telephone calls from your insurance company
Ignoring your insurance company is never a good idea. If your insurer makes an effort to contact you – especially during a claims-settlement process – you’re obligated to comply. For example, if you get into a car accident, your insurance company will surely want to interview you or may even require you to attend a deposition if a lawsuit is involved. Failing to comply could be grounds for policy cancellation. A standard car insurance policy states that the insurer has “no duty to provide coverage” unless the insured is in full compliance with a number of duties. These include promptly notifying your insurer where, when and how the accident happened. A standard policy states that “a person seeking coverage must cooperate with us in the investigation, settlement or defense of any claim or suit” and “promptly send us copies of any notices or legal papers received in connection with the accident or loss.” This can include exams by physicians and medical records.
5. You commit suicide
Generally, life insurance policies have a contestability clause that says, among other things, the policy will not pay out if you commit suicide within the first two years of the policy. However, if you commit suicide two years and one day after you purchase the policy, your beneficiaries will be paid!

Car Insurance myths | what affects car insurance Premium?

1. New Cars Cost More to Insure - This is not always the case. Depending on the driver’s history, insurance for a brand new car is often cheaper than a five or ten year old version of the same vehicle. Newer models have top of the range security features installed, meaning that they are statistically less likely to be stolen, a fact that helps to bring insurance costs down. Older models also tend to be owned by younger or new drivers, who insurers class as a bigger risk and charge a higher premium.
2. Car Color Matters - Although insurers take many factors into account, including engine size, age and value of the car, driver’s record etc., they don’t take any notice of the color.
3. Being Loyal to Insurer leads to Cheaper Coverage - Staying with the same insurance company year on year won’t automatically lower your premiums. It always pays to shop around for a better deal and compare car insurance quotes when it’s time to renew your policy, because providers don’t necessarily reward your loyalty with a reduced price.
4. New Cars Are Stolen More - New models have much more advanced security equipment and anti-theft devices installed, meaning that criminals steer clear and target older vehicles that are easier to steal instead.
5. A Car is Worth What You Paid for It - If your car is totaled or stolen, insurers will only pay to replace it with a similar model at today’s market rate, not the value you paid for it originally.
6. Credit Scores Don’t Count - Sadly this isn’t the case. Most insurers now factor in a customer’s credit score when calculating their insurance quote. The better the credit score, the lower the premium will be. Build your score by keeping on top of credit cards debts and paying bills on time, and you’ll start to see a difference when you renew your auto insurance policy.
7. No Fault Insurance Means It’s Never My Fault - The only thing no fault insurance covers is your medical bills if you are in an accident, whoever is at fault. It doesn’t cover the other driver, it doesn’t cover damage to cars, and it certainly doesn’t mean you’re absolved of any responsibility if you are to blame.
8. I’ve never been in a Crash So I Don’t Need Insurance - Just because you’ve been lucky enough to avoid accidents so far doesn’t mean that’ll always be the case, no matter how good a driver you are. But it’s not just the peace of mind that having motor insurance can provide if something were to go wrong. It’s actually a legal requirement to have some form of insurance, so it’s not an even an option, you must have some sort of protection.