Vehicle Insurance Mafia in India: Tips to lower insurance expense

Vehicle owner's biggest nightmare in India right now is the insurance premium cost. Insurance cost has raised significantly over time and is proving to be too expensive for the value/risk coverage. This article explains the motor vehicle policy, process and tricks to help you understand the situation better and save some money where you can.

Insurance works on fear factor. People are made to take a small amount of guaranteed loss, against the promise that if they suffer a big loss they will be compensated. Insurance is a function of probability (how many vehicles are being sold and what % of them might result in an accident and claim), risk value (how much it will cost if these many claims are raised or what part of the expense will or will not be covered) and shared responsibility (if 2 out of 100 vehicles are to crash, what is the minimum amount we have to take from all 100 owners to cover the risk expense of these 2 owners)

A lot has changed in India's vehicle insurance ecosystem over past few years

• Govt introduced long term policies- like 3 to 5 years- but it was hurting people a lot as initial amount was huge, so now only 3rd Party Liability is sold for 3-5 years for new vehicles and own damage is sold on yearly basis.
• In 2014, for my Apache RTR 160 bike which had on road price of 79k, insurance premium (3PL and Own damage) was 1400 Rs. That is less than 2%. This year I paid INR 1732 for just 3PL and accident cover. With own damage premium would have costed 4000-5000 Rs, 3x increase compared to 2014 price. No doubt insurance premium has skyrocketed
• For new bikes, insurance premium component now costs almost 10% of Ex-showroom price. For cars it is little lower at around 4-5% but still burns owners pocket heavily.
• Accident cover is now sold forcefully, offering 15 lakh compensation if and only if owner dies or faces permanent handicap. You won't get a single penny if you meet an accident but recover after 2 months in hospital having to spend 2-3 lakhs in medical expenses. 

Every year, insurance companies find new excuses to increase premium. But both regulator (IRDA) and insurance companies are fully silent on various reasons because of which their risk has reduced and insurance premium must be lowered.

Reasons why insurance premium should be lowered

#	Reason	Description
1	Lockdown	For about 3 months, most people in this country didn’t step out. So less vehicles on road, less accidents, less claims. Assuming say 10000 claims come up per month costing 100 crores, this is saving of 300 crores in 3 months. Reduce premium
2	Work from home	Even after lockdown ended, lots of people are working from home. This means 20 days a month they are not taking their vehicle out. In a year, more than 250 days out of 365 vehicles do not go out- shouldn’t premium be reduced by 60-75%?
3	More safety features	Bikes now have ABS as standard (above 125 cc), cars have driver airbag as standard. Most cars have driver & passenger airbag, ABS with EBD and several other safety features, reducing risk, injury and claim amount. So premium should be reduced
4		Vehicles having 6 airbags, coffee break alerts, vehicles that got 4 or 5 star global NCAP rating should have lower premium as they are safer.
5	Easy investigation	Most streets have CCTV now. Many owners have installed dashcams, when an accident happens someone on the street makes a video and uploads. So it is lot easier now to find out what exactly happened, whose mistake it was etc. So claim investigation is lot simpler and more accurate.
6	Vehicle price has increased 2x [Details]	The 160 cc TVS Apache was costing 80k on road now costs 1.5 lakhs. Earlier it was possible to buy cheapest cars for 3 lakhs (Nano, alto etc)- now most entry level cars cost 5 lakhs. So even without increasing premium percentage, insurance companies are getting more premium money. So there’s absolutely no need to increase premium % citing silly reasons.
7	Increased Traffic Fine	As govt has increased fine for not having insurance to 1000+, many vehicle owners, particularly two wheelers have gone and renewed their insurance premium last year. This means now there’s more cash flow and no need to increase premium % again.
8	Govt of India is bringing several more measures to reduce road accident rate by 20-25% by March 2021	More reasons to reduce premium as risk is going down. Wider highways with divider and barricades compared to earlier narrow road means less accidents.

Different components of vehicle insurance

While showrooms give one large value for insurance in the quotation, here's a breakdown you should understand. 

• What is 3PL or 3rd Party Liability? When Govt says "insurance is mandatory" it is only the 3rd party liability insurance that is mandatory. But most insurance companies and agents refuse to sell 3PL alone and force you to take up own damage also, where they can make maximum money. 3PL covers the risk of your vehicle causing damage to other people or property in public areas. If you have this, insurance company will deal with any damage claim someone will demand as your vehicle caused damage to their people or property. If you don't have this, you may have to pay compensation from your own pocket, depending on court order. Amount could run into crores depending on nature of damage so it is usually heavy on any individual to pay from pocket.

          3PL is calculated based on engine cc of vehicle. You pay less to kill a person using TVS XL100 (99 cc) than hurt someone with a 1200 cc BMW bike. 1 liter Turbo petrol engine with more power costs less compared to 1.5 litre naturally aspiring engine.

• Accident Cover: This is forced on vehicle owners to get some extra cash. Accident cover only covers death or permanent handicap. If you die or lose some arms or legs, you will get up to 15 lakhs. But you won't get anything if you suffer recoverable injuries. You will need other health insurance for that. Accident cover can be skipped if you can show that you already have accident cover for 15 lakhs or more. Else it will also be forced upon you like 3PL.
• Own damage: This is where agents make maximum money. On new vehicles, dealers will have a margin of 15-20% on first year's own damage premium. On a 15 lakh SUV, own damage premium can be as high as 40-50k. It covers the risk of any damage to your vehicle up to declared IDV or Insurance Declared Value. (Insurance company will not reimburse what you paid for the car, they will only pay current value of the car. Moment you drive out of showroom your car becomes second hand and loses 10-20% value instantly). You can opt for lower IDV and pay less premium (this way you'll agree to bear part of the risk) or skip own damage completely (explained later). Over a period of 10 years, you would have paid entire value of your vehicle as insurance premium.

If ex showroom price is 17 lakhs, you paid another 3 lakhs for insurance, registration, tax etc, you've spent about 20 lakhs. The 3 lakhs is never going to come back or transferred to next vehicle. Out of 17 lakhs if IDV is declared at 15 lakhs, 15 lakhs is max you will get even if vehicle is stolen/scrapped on day 1 after driving home from showroom. Remaining 5 lakhs you've to spend again from pocket for your next car.

• Zero depreciation: New marketing strategy to get more premium. Here the promise is to pay you what you paid for the car and not reduce compensation based on depreciation. Of course, for an extra premium. Do read fine print to understand what all are still not covered.
• Consumables: Some vehicle parts like tyres, clutch, wires, battery etc are considered consumables that need regular replacement. Insurance company will NOT pay for these parts in case of accident, saying these parts anyway needed replacement. Of course for an extra premium, these can also be covered
• Roadside assistance: Towing service, taxi to reach city (again some 50 kms etc) and other such expenses during an accident are covered under this, for an extra premium.

There was one popular Bumper to Bumper variant earlier- I don't see them now. I guess it is replaced by Zero depreciation.

Current ongoing vehicle insurance cost in India (Approximate example only)

#	Insurance Type	Purpose	20-21 Lakhs SUV Creta/ Harrier etc	5-6 lakh hatchbacks	160-200 cc bike
1	3rd Party Liability	Covers any injury/damage your vehicle may cause to others.	8000-9000 INR per year + 18% GST (30-32k total for 3 years)	5500-6500 INR per year + 18% GST (21-25k total for 3 years)	1500 per year
2	Accident Cover	Upto 15 lakh compensation for owner only in case of death or permanent handicap. Nothing for recoverable injuries.	Not sure, approx 1000 INR per year	Not sure, approx 1000 INR per year	250 Rs approx
3	Own Damage	In case of vehicle damage, part of the expense is reimbursed after deducting depreciation etc	40k INR per year	12-15k INR per year	2500-3000 per year
4	Zero Dep	For an extra premium, you will get most of damage expense reimbursed	5000-6000 INR + 18% GST	2500-3000 INR+ 18% GST	NA
5	Roadside Assistance & Consumables		Approx 4000 extra	Approx 2000 Extra	NA
	Total		75-80k during purchase due to 3 yr 3PL (60k INR per year or 5k per month)	25-30k per year	5-6k per year

How exactly some websites like PolicyBazar offer 50% discount?

If you thought these companies are taking a huge loss to serve you, you are a fool. Take a look at IDV or insurance declared value. Hyundai Creta top variant has on road price of over 20 lakhs. But here offered IDV is 8-11 lakhs. To show you massive discount, these firms reduce IDV significantly and then offer lower premium. It is not a bad thing if you don't want to spend a lot on insurance, but be informed you claim will also be proportionately compromised. Don't expect full value of the car to be paid in cash of a major damage.

Precautions to take while paying insurance at dealer's location for new cars or bikes

Paying vehicle dealers the amount they quote for insurance is the biggest mistake new buyers make. Here's why.

• Most vehicle buyers have more pressing issues (like which colour to buy!) to deal with than insurance premium. Dealers take full advantage of this and do not give any options, discounts or details on the insurance component, just quote maximum possible amount in the invoice.
• Everyone takes maximum care of their new car. Cars facing maximum damage in first year is low probability. A car owner might want to skip own damage or reduce IDV (to reduce premium), but unless you insist you will not be given these options.
• As dealers will have 15-20% margin on own damage, you can easily demand 10% discount. But mostly you will be offered one free seat cover or floor mat instead.
• It is not mandatory to buy insurance at vehicle dealership. Get a quote from elsewhere and if price difference is huge, ask dealer to match it in terms of risk coverage and premium.

TVS Apache RTR 160 insurance quote

Tips to reduce your car/bike insurance spend

1. Skip own damage and own the risk yourself. This is a risky proposition but highly rewarding. For my 80k bike, if I pay 3000 Rs per year as premium, I would have paid 15k over 5 years. But all these 5 years I didn't have any claim. Recently I had an accident and bike repair expense came to about 6000 total, which is way less than total premium I paid. So when the value of vehicle is not huge, if you are willing to take the risk, you can skip own damage completely and save some money. Risk here is you won't get anything if there's total loss. But then, if you calculate how much you will spend on insurance over the life of your vehicle, you agree that it is better option to keep the money with ourselves and own the risk. This option works best for budget vehicles. If you have bought a 30 lakh SUV under loan and you can't afford losing it then you're better off paying own damage insurance premium.

If the damage is caused by another vehicle then you can always claim it under that person's 3rd party liability. You don't need your own damage for that. Also most minor incidents involve dents and scratches, broken mirror, headlamp etc, which cost less than your insurance premium or you can live with these damages for sometime.

2. Reduce IDV: You can reduce own damage premium by reducing insurance declared value. Risk here is your claim processing also will be proportionately lower, but in most cases you can afford that risk.

3. Bargain with dealer or buy from insurance company offering lower premium. Like I said dealers will have 15-20% margin on own damage. Negotiate a bit to get it lower. Or go with some other agency.

4. Ask to avid Accident Cover. If you can establish that you already have an accident policy offering 15 lakh coverage, you can skip this component. 

How to select right insurance company?

There're dozens of companies offering vehicle insurance in India. While everyone is happy to sell the policy and collect premium, what matters is how quickly your claims are processed. I suggest considering following parameters to select your insurance company.

• Oriental Insurance, New India Assurance and United India are some of the most popular general purpose insurance companies with presence all over India and well established process. It is better to stick with these leaders even if there's small variation in premium %.
• Bank based Insurance cos: HDFC has HDFC Ergo, ICICI has ICICI Lombard, SBI has SBI Genera and so on. If you are already a customer of these banks and trust them, might be more convenient to manage your insurance also from same company. If you have a salary account and a dedicated relationship manager it might be easier to get some discount or claims processed faster.
• Less popular ones: Many other insurance companies offer vehicle insurance. But check if they have an office in your city. Else claim processing will be complicated as your vehicle will have to wait in garage for weeks while they send their inspectors from nearest big city.

Insurance claim process

True colours of an insurance company comes up only when you raise a claim. While you expect instant settlement, insurance company tries to find all excuses why they can't pay you. An inspection is done (which sometimes may take weeks). Many things can happen.

• While you might expect full value of car as compensation as car has toppled over, lost its structural integrity, insurance company may insist you repair it and use it further (as it is cheaper for them to pay 2-3 lakhs to fix new door and roofs). There's no fixed process for this so you've to work out with you insurance company for right way out.
• Any sign of violation- driver not having license, vehicle not serviced on time, violation of some traffic rules/speed limits etc can be exploited to reject a claim.
• Some companies are notorious to take months to process a claim despite everything being fine. Check online for existing customer feedback or check with your friends and relatives who had a policy from that company.
• Learn what to do in various scenarios- like in case of flooding, you trying to start the car will damage it further and may result in rejection of claim. 

What Govt can do to help reduce insurance burden

• Give options on Accident cover- may be someone is fine with 5 lakh cover instead of 15, may be someone also wants hospitalization expense reimbursed- give people an option, don't make some random rule mandatory.
• Ask insurance companies to lower premium. I have explained various reasons why insurance premium can be lowered.
• Give customers an option to turn ON/OFF an insurance. For example, I may have a 20 lakh SUV that I will use only during weekend. In that case why pay massive insurance for whole year? Give me an option to turn on insurance before a trip and turn off after trip. This way I should be able to pay proportionate for my usage. Singapore already has this kind of a scheme for vehicle registration- weekend vehicles (red colour number plate) pay less registration fee. This can work similar to prepaid mobiles- I don't have to recharge for whole year- if I want to use the sim I can recharge for a day or a week or a month etc.
• Reduce Tax. Vehicle insurance, like other financial services cost 18% in GST. If it can be reduced to 12 or 5% as insurance is an essential service and not a luxury item, it can help reduce total cost of insurance as well as vehicle ownership.
• Any insurance company refusing to issue 3rd party liability coverage alone should be told to give it writing. On showing this letter to traffic police, vehicle owners shouldn't be fined for not having insurance.

I feel some insurance terms need to be redefined...

#	Current term	Proposed term	Reason
1	No claim Bonus	Charity compensation	You’re paying full premium but not claiming a penny, giving 100% charity to insurance company, who take pity on you and give some 10% discount for next charity
2	Own Damage	Vehicle Accidental Damage	The term sounds as if I damaged my vehicle voluntarily and doing a crime by claiming insurance. It tries to give guilty feeling to owners. Rename it.

High insurance is not just affecting personal vehicles. Commercial vehicle owners are also affected a lot. Insurance premium for luxury buses runs into lakhs of rupees every year, which owners will have to recover from passengers through higher ticket price. So don't think you are not affected if you don't have a vehicle. Do share your thoughts. If I am wrong in above thoughts I am ready to get corrected.