In yet another MOTORINDIA exclusive, we bring you a pertinent dialogue on various aspects of motor insurance for commercial vehicles with the top brass of United India Insurance Company (UIIC) Regional Office, Madurai. A report by Dhiyanesh Ravichandran
The skyrocketing third-party premiums (TPP) for transport vehicles are a real kick in the teeth for vehicle owners and fleet operators in the country. Together with rising fuel prices and toll fares, it is creating a ripple effect in the trucking industry that is already reeling under idling fleet capacities and nose-diving freight rates. As usual, the industry was resentfully awaiting a further smack early this year from the Insurance Regulatory and Development Authority of India (IRDAI) that never misses to revise the premium rates at the dawn of every financial year. But the notification came two months later in June, just days after the general elections, raising eyebrows among transporters on a plausible political nexus in tariffing TPP!
The third-party insurance cover is a statutory mandate under Motor Vehicles Act for all vehicles on road. As per the latest Motor Vehicle (Amendment) Bill 2019, those vehicles driven without valid insurance are liable to pay a minimum penalty of Rs. 2,000 and confiscation of the vehicle in case of any mishap involving third-party. Thus, considering the risks involved, transporters cannot afford to go non-compliant, but the rationale and good intent behind the concept of motor insurance is lost. They see insurance as yet another means of virtual extortion of hapless transporters. And a huge chunk of them hardly care about comprehensive insurance policies covering own damage with some extra premium in addition to TPP.
So, when MOTORINDIA met a team of regional managers at UIIC Madurai Regional Office, the objective was to get more clarity on the rising TPP and the significance of comprehensive insurance for transport vehicles in the current scenario of market downturn. United India is one of the four nationalised general insurance companies, fully-owned by the Government of India. It pioneered motor insurance in India decades ago, and is among the leading insurers of motor vehicles in the country today.
Tariff strengthens market
L. Rangarajan, Chief Regional Manager (CRM) at Madurai RO, agrees to the plight of vehicle owners that there has been a steep increase in TPP in the last three years. “But we have to understand why TPP is tariffed in India. IRDAI arrives at motor TPP rates every time considering the latest data on claim paid and gross written premiums of the previous few years, provided by the Insurance Information Bureau of India (IIBI) that sources the necessary data from all the insurance companies. It publishes exposure drafts to solicit public opinion on the proposed rates before declaring revised tariffs,” he explains.
“Thus, a higher rate of accidents involving commercial vehicles and ensuing insurance claims are directly related to tariff hikes. Compensation to accident victims and property losses are also ascending as per minimum wages and inflation rates. Since the liability of the insurer is unlimited in third-party insurance as it covers any damage caused to life and property of others, the insurer has to have a strong asset base to observe losses owing to higher claims. Amid market competition, insurance companies may indulge in discounting TPP to retain their customers, which may lead to erosion of their necessary capital backup to settle claims. Therefore, to prevent companies from incurring losses or closure that can create uncertainties in the industry, IRDAI fixes TPP rates below which companies cannot discount,” he adds.
However, talks on de-tariffing TPP have picked-up new momentum in recent times and many within the industry are in favour of the idea, Rangarajan points out. “Tariffs are in place only to strengthen the market and prevent its collapse. Thus, when the market is mature enough to manage itself, tariffs will be removed. It is the need of the industry but has to get executed properly. Sooner or later, this is likely to happen, and the TPP rates may come down,” he notes.
Regional Manager R. Panneerselvam opined that de-tariffing rates would imply that the concept of ‘one-size-fits-all’ premium will be done away with as insurers can decide the rates on their own depending on the underwriting. Since different types of vehicles have varied risks depending on their application and operations, there is no point in having a uniform premium across all the categories. In fact, IRDAI is already fixing premium rates based on the weight of risks involved in different classes of vehicles. For instance, public and private goods carrying vehicles have different tariffs, while there are five sub-categories notified under each of them with varying tariffs depending on their GVW.
A typical case in this regard is school buses. Although school buses are already charged slightly lower premium than other buses, considering their restrictive operations with regard to fixed distance and routes covered, their quantum of third-party risks would be far lower than other classes of commercial buses. “Thus, with tariffs removed, more and more categories of vehicles and clients can be identified by the insurer themselves based on their risk weightage, which may translate into higher discounts of TPP for low-risk clients,” Panneerselvam elaborates.
A ‘Good’ insurer
The CRM further opined that lifting of TPP tariffs would also benefit nationalised insurance companies, along with the insured. “Owing to our robust asset base, we can observe losses for a longer period than new companies or private players. Perhaps, that’s the reason why PSU insurance companies are largely successful in auto insurance and are preferred by customers,” Rangarajan states. He went on to list out a few attributes that vehicle owners and transporters should look for in companies before choosing them as their insurers.
Public sector companies have higher underwriting or reinsurance capacity and goodwill in the market. “UIIC, in particular, enjoys a reputed position as it was previously promoted by a renowned automotive business house, and that legacy is still intact. Further, we invariably settle more than 95% of the claims notwithstanding very minuscule repudiation rates of just 2-3%. That is because our mission is to help the customers on genuine claims. And, our marketing and claim settlement offices are the same, providing ease to customers. We offer personalised service to our clients aided by a vast network of branch and micro offices across the country and centralised IT network,” Rangarajan claims.
In this regard, D. Ravichandran, Manager, UIIC Divisional Office, Dindigul (under Madurai RO), explicates what sort of IT-driven value-added services are offered to their clients. “With the advent of comprehensive online real-time environment (CORE) network, apart from quick issuance of new policies and renewals online, we can offer claim services to policies issued by any other UIIC offices. For instance, if a trucker from Punjab met with an accident in our locality, he can either reach us or their office to request a spot survey, which can be arranged within 24 hours anywhere in India, and initiate claim processing immediately to reduce his downtime,” he explains.
“Further, SMS and e-mails are sent to clients at every stage of policy issuance and claim process. To address the menace of fake policies, policies can be verified online by customers using policy number or QR code,” he adds. Besides, United India Insurance Company has tied up with hundreds of OEM-authorised workshops and independent garages pan-India to offer cashless service so that there is no need for clients to spend out of their pocket for repairs and later wait for reimbursement from the insurer.
Comprehensive coverage for CVs
UIIC has also partnered with leading commercial vehicle OEMs and dealers to offer policies with extended warranty coverage, under which even engine and other mechanical repairs can also be covered. According to K. Subramani, Regional Manager, UIIC Madurai RO, this concept is gaining popularity in the commercial vehicle industry, wherein transporters and fleet owners get benefited from protection against unforeseen product defects and repairs. “Apart from nil-depreciation now being extended to CVs as an add-on and coverage of vehicle accessories like reefer containers or over-size trailers, Legal Liability Policy (LLP) is available as a separate offering for big transporters and freight forwarding agencies to render protection to the cargo that is hauled,” he informs.
As for the importance of a comprehensive insurance package for commercial vehicles, Rangarajan states that complete coverage would help transporters reduce the total cost of ownership (TCO) in the long run. “Transporters these days buy premium and higher-capacity vehicles with new technologies and aggregates, making them expensive to buy with exorbitant repair costs. For instance, factory-built cabin in trucks are largely preferred by buyers, which are expensive and difficult to repair, and a majority of insurance claims warrant complete replacement of cabin. Thus, it may not be economical for a vehicle owner to manage such costs, as a single total loss of vehicle may put back his business with unforeseeable expenses,” he adds.
As a matter of fact, the own damage (OD) premium for motor vehicles has long been de-tariffed, which means insurance companies offer plenty of discounts, which has led to market-crashing of premium rates in the last 10 years or so. “The OD premium for commercial vehicles is just a minuscule addition to the standard TPP, and yet insurers withstand lower rates because of the sheer volume of scale. Today, as much as 70% of transporters go for comprehensive insurance packages, while only those with older generation vehicles choose ‘act-only’ policies and manage repairs on their own,” avers the CRM. “We also offer special discounts to fleet customers based on previous claim rates and volume of business, while no claim bonus (NCB) is available even for CVs up to 50%,” he adds.
On the whole, comprehensive commercial vehicle insurance is essential to safeguard trucking from financial burden and insolvency, especially in a scenario when the road transportation businesses are pushed over the edge with the double whammy of poor freight availability and soaring operational costs.