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Auto Insurance: Get More For Less

By Jay Sampat | 10/24/2011 11:58 AM Monday

Here’s something to stop and think about: When was the last time you devoted a few minutes to the particulars of your auto insurance policy? Or have you bought it once and not bothered about it again? This is, in fact, what many of us do, and if it has happened in your case, it might be a good time to refresh your memory on just where your policy stands. Such a step is likely to take a bite out of your insurance bill, with minimal effort.

Post 2007, motor insurance has moved beyond the four basic variables – engine capacity, geographical zone, age and the price of the vehicle – to as many as 10 variables. Today, insurers consider a range of factors to arrive at the insurance premium, like the vehicle’s manufacturing date, make and model, usage and capacity, the driver’s profile – like age, gender and occupation – as well as the place of parking and area of use of the vehicle. All these variables have a bearing on the insurance premium, as they help in estimating the probability of a claim being made and the quantum of the claim.

In more advanced markets, these parameters have proven to be strong differentiators of risks, and hence, have been used for pricing by insurers. In India, however, the availability of such information is very little. As a result, all policyholders pay an average price for insuring their vehicles, which works like a cross-subsidy. Information such as the place of residence, marital status, credit history and the number of drivers has a bearing on the premium, and also brings in more equity amongst disparate groups of policyholders, who differ considerably in their driving habits.

Currently in India, pricing for an auto insurance policy is not consumer-friendly, and there is very little distinction made between a good driver and a risky driver. What doesn’t help is that customers often leave many questions in the proposal forms blank. This also limits the scope of customer segmentation. Until recently, insurers did not collect such details from customers, as companies were only concerned about the mandatory variables for computation of premium. The legacy of non-differential pricing resulted in a culture where neither the agent nor the policyholder is willing to provide any additional information that can be used for better pricing.

In order to pass on lower premiums and ensure better customer profiling, insurance companies need more information for a significantly long period to ascertain the risks involved. Policyholders should provide insurers with as much information as possible or, at the very least, the information required by insurers. Only then will they have a chance to pay lower premiums.

Even if the information provided or available is limited, policyholders can still lower their premium outgo by checking their No Claim Bonus (NCB) status, and ensuring that they get the correct NCB on renewal. If you are buying a new car, you can transfer the NCB accrued from your old car’s policy to the newly-purchased car’s insurance policy, provided you have sold the old vehicle. Check your car’s insurance value or the Insured Declared Value (IDV). This should approximately reflect the resale price of your car at the time of insurance. Make sure that you are buying the add-on covers that you want to buy, rather than those forced on you by your distributor.

Some insurers provide additional discounts to customers on providing some extra information when they buy policies from the company’s website. Customers who are confident of their safe driving abilities and follow safe driving habits can opt for a higher deductible beyond the compulsory deductible of Rs 500 for 1500 cc cars or below, and Rs 1000 for cars above 1500 cc. A higher voluntary deductible can earn discounts of 20 to 35 per cent of the OD premium, subject to a maximum of Rs 750 to Rs 2500. The voluntary deductible can be chosen from a minimum of Rs 2500 to a maximum of Rs 15000. These would be added to the appropriate compulsory deductibles.

With analytics coming of age in India, the variables used to arrive at insurance premiums will only grow in the coming years. As a result, customers who are willing to provide more information about themselves will benefit by way of reduced premiums.

 

Find More Articles on: DSIJ Magazine, Insurance, Personal Finance, Insurance, General Insurance, Auto Insurance

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