IRDA’s new motor insurance rules and their effect on your customer’s premium outgoes

changed motor insurance rules

New changes in the structure of motor insurance policies are not a new thing. The Insurance Regulatory and Development Authority of India (IRDAI) continuously introduces new rules in motor insurance policies which change their features. Recently, IRDAI has made significant changes in both car and bike insurance policies which are purchased for vehicles bought on or after September 1, 2018. These changes have not only revamped the tenure of motor insurance policies brought for new vehicles, but they have also changed the underlying premium outgo for your customers. Here are the changes IRDAI has made–


  • Car insurance policies would have a mandatory third party liability cover for a continuous period of 3 years
  • Bike insurance policies would have a mandatory third party liability cover for a continuous period of 5 years
  • The sum insured for personal accident cover under both car and bike insurance policies would be increased to INR 15 lakhs.


What these changes mean for your customers


These changes have become effective starting 1st September 2018. Every new car or bike bought on or after this date should have an insurance cover incorporating these changes. Existing policies, however, which come up for renewal after 1st September 2018 would not be affected by these changes. Besides these, here’s what the changes mean for your customers–


  • Higher premiums

Given the long-term cover for third-party plans, your customers would have to shell out a higher upfront premium for motor insurance policies. The long-term third party premiums for new cars and bikes would be as follows–


For private cars:


Engine capacity of carsThird party premium for three years
Up to 1000 ccINR 5286
More than 1000 cc but below 1500 ccINR 9534
More than 1500 ccINR 24,305



For two-wheelers:


Engine capacity of bikesThird party premium for five years
Up to 75 ccINR 1045
More than 75 cc but below 150 ccINR 3285
More than 150 cc but below 350 ccINR 5453
More than 350 ccINR 13,034

(Source: )


Moreover, personal accident cover has also increased. The sum insured has increased to INR 15 lakhs which have also increased the premium to INR 750 per annum. This premium increase would, however, be applicable for policies bought on vehicles purchased after September 1, 2018.


  • Convenience

With long-term policies becoming mandatory, customers would benefit from continued coverage without the hassles of annual renewals. Moreover, their vehicles would also have the mandatory cover for the stipulated duration thus eliminating fines and penalties when driving the vehicle uninsured.


What these changes mean for insurance companies


Even insurance companies are affected by these changes as they would have to restructure their plans to incorporate the new rules. Besides this, insurance companies can expect the following –


  • Increased first-year revenue


As the upfront costs for policyholders increase, insurance companies would also generate higher first-year revenues from the sale of their motor insurance plans.


  • Better insurance penetration


Insurance penetration is also expected to increase given the long-term nature of policies and the necessity of motor insurance plans.


The final word


Third party liability coverage is mandatory as per the Motor Vehicles Act, 1988 and as such, your clients have to buy a valid cover for their new vehicles. However, you can give your customers a choice when buying motor insurance plans. They can buy only a long-term third-party plan to reduce their premium outgoes. Alternatively, long-term comprehensive plans can also be considered if the associated premium outgo is not a concern. Lastly, your customers can choose a bundled policy which gives the mandated long-term third party cover and one-year own damage cover. This combination would be good as the premium cost would be low and IRDAI’s new rule would also be complied with. So, as an insurance agent, you should understand the changes introduced by the IRDAI in insurance policies for new vehicles along with their effect on your customers so that you can guide your customers in buying an ideal motor insurance plan.


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