Long-term motor insurance might just work

A large number of two-wheelers on Indian roads are uninsured. This is not due to high annual premiums, but because the perceived benefits of taking an insurance policy are just not apparent.

Let us briefly look at the major risks associated with having a vehicle on the roads:

The first risk is the damage to your own vehicle in case of an accident. But unlike cars, where you would run to the paint shop even if there is a small scratch, owners of two-wheelers tend to go to a service centre only if the vehicle is not functional. A paint job requirement or even a minor dent on the bumper is usually ignored.

The second is the risk of causing damage to others. This is a major risk and is covered under the third-party component of an insurance policy. This is mandatory by law as it puts others at risk. But since one generally never makes a claim for one’s own damage, the insurance policy itself is completely ignored.

A buyer usually takes an insurance policy at the time of purchase and then tends to forget or ignore it at the time of renewal. Policing is the only way to discover an uninsured vehicle. As a result, we have a large number of uninsured two-wheelers on Indian roads.

One smart solution that the industry has been suggesting is a long-term policy – issue a policy of a longer duration than the current one-year period to solve the problem of renewal reluctance.

The insurance regulator has now allowed three-year insurance policies. The good part for consumers is that premiums would not change within the three years. Insurance companies on their part would be happy as the claims in this segment are not too high, and hence would market it aggressively.

If the move is successful, we may even see four-wheeler insurance being offered for a longer duration. Third-party insurance is crucial as you are putting others at risk while you are driving on the roads. Any steps to mitigate this risk are always welcome.