Insurance regulator, IRDAI has announced the withdrawal of Long Term Package (LTP) cover offering both, Motor Third Party insurance, and Own Damage (OD) insurance for three and five year terms
It was only as recent as August 2018 that the announcement was made that general insurers (except specialised and standalone health insurers) would offer only three-year Motor Third Party insurance policies for new car purchases, and third party insurance policies for new two-wheelers.
The change had been incorporated from September 1, 2018. Under the aegis of the long term covers, Insurers offered LTP covering both Motor Third Party insurance, and OD insurance for three or five years as required. Another option was a bundled three-year or five-year third party component, and one-year term for OD.
In September 2019, insurers made available stand alone annual OD covers (inclusive of standalone OD cover for fire and/or theft if the policyholder opts for it. The covers have now been reviewed, and performance of LTP covers evaluated.
With concerns related to their implementation since introduction in September 2018, IRDAI has now withdrawn LTP covers for three-year and five-year terms for new cars and two-wheelers wef, August 1, 2020. This effectively ends their implementation in just under two years.
Challenges includes acturial pricing for insurance for longterm OD cover; distribution of the policies owing to affordability limitations; Possibility of forced selling owing to financial interest/linked to loans; Service efficiency means policyholders are strung along with a LTP with no flexibility; and Non-Uniformity of No Claim Bonus (NCB) adds to confusion and dissatisfaction among those availing the cover.
NCB for LTP policies already issued will accrue upon policy term completion. With this, no long-term OD covers are allowed, and three-year and five-year motor third party insurance will be offered. OD covers were designed for insurance for physical damage owing to accident, theft, and natural catastrophe.
Financially it changes only a single aspect as multi-year TP insurance remains mandatory. LTP covers are designed for liability arising from an accident causing death/injury to a pedestrian, or person(s) in another vehicle. From now on, insurers will sell mandatory three-year or five-year TP cover with only one-year OD cover, as longer term OD covers are now withdrawn. OD covers were bundled in when LTP covers become mandatory but remained unregulated, meaning pricing was high.