Trends and challenges in motor insurance
Feb 08 2013 , Mumbai
As customer preference shifts towards service-based insurance coverage, FC looks at the changing trends in the auto industry, the growth drivers and the many challenges
According to the data from insurance regulator, the total gross written premium in motor insurance till the nine months ended December 2012 was Rs 21,219 crore, out of which, own-damage contributed Rs 12,080 crore, while third-party insurance was Rs 9,139 crore. The 16 private insurers had a share of Rs 11,163 crore in the total motor insurance premium from April-December 2012. The motor insurance segment accounts for the largest business share for non-life insurance companies contributing 45.84 per cent in 2011-12 (42.68 per cent in 2010-11) and growing at a healthy growth rate of 33.38 per cent (20.82 per cent in 2010-11).
Clear shift from small to big cars: The Society of Indian Automobile Manufactures has lowered its growth estimates for financial year 2012-13 (FY13) with the auto industry likely to post the slowest growth in the past nine years. According to the estimates, while the passenger car volumes are expected to be flat this financial year, there is a rising demand for large cars, including utility vehicles costing below Rs 15 lakh, resulting in this segment growing by 20 per cent as on December 2012.
The passenger buying behaviour has changed from buying small vehicles to larger vehicles in terms of utility vehicles. That has had its impact on the the insurance industry too. The rural demand has also gone up for the utility vehicles. Similarly, with country’s economy slowing down, ban on mining and dilemma on diesel pricing, the heavy commercial vehicles segment has witnessed a decline in growth, while the small and light commercial vehicles have grown substantially this year. In case of two wheelers, the growth has been 5 per cent, while scooters have grown by 18 per cent.
Petrol models regaining preference: Says Amitabh Jain, head motor insurance at ICICI Lombard General Insurance, “Due to increasing petrol prices, we saw an increase in demand for diesel vehicles last year. Penetration of diesel cars was at a peak of 49 per cent in Q3 of this financial year, despite the fact that a diesel car costs 20 per cent higher than a petrol model. However with de-regulation of diesel prices, the delta in the fuel cost is narrowing.”
“Since there is higher cost of purchase and overall advantage on fuel cost, people are going back to petrol models. In private cars, the ratio of petrol model to diesel model, had touched 50:50 in Q3 of the financial year. Going forward, we expect it to be 65:35,” added Jain.
Product innovation in motor policies: Over a couple of years, one has seen non-life insurance companies launching several add-on covers.
“People do not want just standard plain vanilla covers. They are demanding full coverage of the vehicle, including zero depreciation motor insurance cover, return to invoice cover, enhanced personal accident and hospitalisation cover,” says KG Krishnamoorthy, MD and CEO at Future Generali India Insurance.
“Not all insurers are offering all kinds of add-on covers. Some insurers are offering innovative covers based on all car models, while others are offering it only on a few select models,” added Rao.
Adds Jain of ICICI Lombard general insurance, “In case of a theft, many insurers pay the insured declared value (IDV) in a standard motor insurance cover. The IDV is the depreciated price of the car depending on its age. Some insurers now have launched a return of invoice product, which will pay the full showroom price to the customer incase of a theft.”
“The other trend is that apart from coverages based on the asset, we are also seeing assistance services being offered by insurers, such as fuel assistance on a highway, towing, garage cash, no-claim bonus, spot repairs, medical assistance and alternate car for alternate conveyance,” said Sanjay Dutta, head (underwriting and claims) at ICICI Lombard General.
“We have come out with various policy initiatives for customers, such as creating an insurance account where he can manage all his policies, mobility solutions to remind him on renewals and send him the list of garages and hospitals in his residential area. In case of an accident, we are also allowing customers to send us MMS of the car to initimate us about the claim,” added Dutta.
Challenges in motor insurance: According to estimates, around 40 per cent cars and 70 per cent two wheelers are underinsured. The traditional distribution channels have failed to spread the insurance net beyond a point. Since the premium of an insurance policy for a two-wheeler is less than Rs 1,000, agents do not consider it a lucrative business due to lower commissions. Non-life insurance companies have time and again stressed the need for introducing long-term two wheeler policy.
The other challenge faced by insurers is that there is not much of data to help them in pricing a risk. According to a report published in 2012 by the Road Transport Authority, the driver’s fault account for a whopping 77.5 per cent of the total road accidents. Yet the pricing is based more on the year of manufacture of the vehicle, engine capacity, price and the zone in which the vehicle is bought and less on the age, occupation and credit score of the driver and usage of the vehicle.