Sanya’s car insurance policy is about to expire in another five days. She has received the renewal reminder of the same from her insurance company.
She suddenly realizes that the car insurance premium has gone up even though she has filed no claims in the preceding term. This thought troubles her as paying up for it might pose some financial difficulties for her. She is thoroughly confused about what to do and is in need of help.
Do you find yourself in the same situation that Sanya is in? Read on for some guidance.
Factors that Result in the Increase of the Car Insurance Premium
The factors given below indicate the reasons for the increase in car insurance premium rates
- Annual Third-party Premium Hikes
The Insurance Regulatory and Development Authority of India (IRDAI) regulates the third-party insurance premium rates in India. The IRDAI reviews the rates on a yearly basis and usually, there is a 20%-30% hike in the premium rates. This hike is decided based on the number of claims raised and the loss ratios of the car insurance companies.
The third-party premiums charged for private cars are as follows -
| The capacity of the Car Engine | Third-Party Premium (INR) for FY 2020 | Multi-Year (Three Years) Third-Party Premium (INR) for FY 2020 |
|---|---|---|
| Less than 1000 CC | 2,072 | 5,286 |
| Greater than 1000 CC but Less than 1500 CC | 3,221 | 9,534 |
| Greater than 1500 CC | 7,890 | 24,305 |
- Insurers may decide to increase the Own Damage Premium
The insurers are given the freedom to determine the own damage premium rates. Insurance companies are beginning to use Artificial Intelligence and data-driven strategies to determine the driving habits, claim frequency, claim history of different customers, etc. to decide the premium rate for own damage and comprehensive policies.
- Increase in reported cases of claims of certain cars
The insurance company will look at the total number of registered claims, the ratio of genuine and fraudulent claims, and other information relating to a specific time period in order to determine the premium amounts that are to be charged. With a noticeable increase in the risks associated with the company’s policies, the premium rates will also increase.
- Increase in reported cases of car claims in your location
The number of reported cases in a year is an important consideration for the car insurance company to determine the rate of premium for a policy. With the increase in the number of cases, there is a clear indication that the area is more accident-prone or faces more threats of theft. This increases the risk of the insured thereby resulting in an increase in the premium amount.
For example-Ashish lives in Mumbai, which is considered to be a flood-prone city as rains and floods are quite common here. Thus, after considering this factor, his insurance company decided to increase his policy premiums. The reason being that on a yearly basis his insurance company receives many claim requests. Hence, by increasing the premium cost, the insurance company will recover the cost of claims.
- Filing small claims in the policy year
There is no rule set in stone for filing car insurance claims, yet one must refrain from filing insurance claims in case of minor accidents. Filing a claim for every other dent or scratch on the car must be avoided since there would be a loss of the NCB, a discount offered by the insurer at the end of the claim-free year.
- Too High IDV
The Insured Declared Value (IDV) is the maximum amount that the insurer will pay to the indemnified in case of damage, theft or total loss of the insured’s vehicle. It is calculated using the current market value of the car (inclusive of the cost of the accessories and after deducting depreciation). The IDV regulates the risk premium only for own damages cover and not for third-party insurance. It is important to note that the higher the IDV, the higher is the premium amount. A very high IDV can burn a hole in the policyholder’s pocket.
One must not lower the IDV during the time of renewal just to pay a lower premium as this might expose the car to greater risks and financial losses. Neither must one resort to a higher IDV value to command a higher price for the car, for the IDV is the maximum amount that the insurer will pay in case of financial loss. It is prudent to get your car insured for the entire IDV and at the rate closest to the actual market value.
- Vehicle Age
The age of the car coupled with the engine capacity will determine the insurance premium that is to be paid. Peruse the tables below to understand the rate of premium for different ages of the car –
Premium Rates of a car | |||
|---|---|---|---|
| Age of vehicle | For cubic capacity less than 1000cc | For cubic capacity between 1000cc and 1500cc | For cubic capacity more than 1500 cc |
Zone A | |||
| When the car is less than 5 years old | 3.127% of IDV of the car | 3.283% of IDV of the car | 3.440% of IDV of the car |
| When the car is between 5 and 10 years of age | 3.283% of IDV of the car | 3.447% of IDV of the car | 3.612% of IDV of the car |
| When the car is above 10 years of age | 3.362% of IDV of the car | 3.529% of IDV of the car | 3.698% of IDV of the car |
Zone B | |||
| When the car is less than 5 years old | 3.039% of IDV of the car | 3.191% of IDV of the car | 3.343% of IDV of the car |
| When the car is between 5 and 10 years of age | 3.191% of IDV of the car | 3.351% of IDV of the car | 3.510% of IDV of the car |
| When the car is above 10 years of age | 3.267% of IDV of the car | 3.430% of IDV of the car | 3.596% of IDV of the car |
Please note: Zone A consists of New Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, and Zone B consists of the Rest of India.
- Repair and Replacement Cost of Your car and its parts
The repair and replacement cost of some car parts will result in an increase in the premium amount, as the pay-outs of the insurance company go up. If the expenses incurred are insignificant and of a much lesser quantum, then it is best that the insured resorts to paying this out of his or her own pocket, especially considering the fact that the insurance company will only pay the amount after subtracting the depreciation costs and the deductibles.
- No Renewing Policy on Time
If the policyholder fails to renew the policy on time, then he or she stands to lose the No Claim Bonus. The insurance company offers a grace period of 90 days from the date of expiring of the existing policy for the insured to renew the policy, so do not delay it further than that. Losing your NCB due to delaying in policy renewal means you won’t be able to use your accumulated NCB to get discounts on policy premiums. Hence, you will have to pay higher premiums for your car insurance.
- Modifications in Car
Modifications to the car of any kind might result in an increase in the premium amount. For instance, the insured will have to pay higher premiums when he or she installs a CNG Kit, as CNG cars are associated with higher risks and the risk factor is directly proportional to the premium amount. The additional premium that has to be paid for using a CNG kit is generally 4% – 5% of CNG kit value. The age and make of the car can increase this premium amount further by another 4% - 5 %. Do ensure that you provide information of this at the earliest to the insurer to avoid any hassles in the future.
- Exemptions on depreciation
Zero depreciation or the Nil Depreciation Policy is an add-on that enables the indemnified to seek the costs incurred while replacing the damaged parts of his or her car. This add-on guarantees that the wear and tear costs of the car are not deducted from the final claim settlement amount. Opting in for this cover will enhance the coverage of the automobile, but will also demand a greater premium from the policyholder.
- Underwriting
Underwriting parameters are known to vary from insurer to insurer. The risks that are factored in can be grouped under four main categories, namely, vehicle-related, location-related, experience-related (in terms of claims history of the insured persons), and driver-related. If the risks associated are greater, then the premium will automatically increase.
Conclusion
The slightest change in risk or the probability of loss for the insurer will show through changes in the policy rates. Non-filing of claims during the term of the insurance is not the only consideration for maintaining the same policy rate throughout. These external factors too play a significant role. Be vigilant and fully aware of all measures that need to be taken, if and when you are faced with such circumstances.
