Save More on Car Insurance

There can be huge differences in your car insurance premium depending on whom you are buying from --  car-dealer, insurance company websites, aggregator websites, brokers and agents. Here is how to reduce your car insurance premium

 

Manmohan Sardesai (name changed) wanted to renew the car insurance for his Tata Nano LX 2009, registered in Mumbai.

Mr Sardesai is aware that his existing 35% no-claim-bonus (NCB) will become 45% when he renews the policy as no claims were lodged during the year. Mr Sardesai has been buying insurance from his car-dealer since he purchased his new Nano car in 2009. Once you are a customer with one insurance company, the policy renewal is done blindly with the same company, unless the policyholder overcomes his inertia and looks for a better deal. This time, Mr Sardesai was keen to find out if he could get better offers from other insurance companies.

He logged on to Policybazaar.com to compare the premiums of different insurance companies. The lowest premium quoted was from L&T Insurance of Rs2,423. He could complete the sale online. Before he hit the ‘Buy’ button, Mr Sardesai wanted to check if he could get a better deal by going directly to the website of L&T Insurance. It was selling the same insurance for Rs2,482. The difference of Rs59 was shown as ‘risk based discount’ on the website of Policybazaar.com. It is unclear why they were able to offer higher discount than L&T Insurance’s website itself. L&T Insurance did not respond to his query about the difference and Policybazaar.com told him that it is an aberration and that its prices should be the same as that offered on the insurance company’s website.

At this point, Mr Sardesai decided to compare PolicyBazaar’s offer with other insurers’ online offers. Bajaj Allianz quoted Rs79 higher. If the difference with L&T Insurance’s quote was attributed to ‘risk based discount’, the higher Bajaj Allianz quote was attributed to ‘own damage’. Bajaj Allianz asserts that the pricing should be in sync. But, it was not, even when he rechecked it after a gap of one and a half months.

Bharti AXA’s quote was Rs49 lower than PolicyBazaar’s. The insurer did not respond to clarify the difference. It means there is no one-stop-shop for getting the best quotes for car insurance. Even though the difference in quotes is marginal, it can be high, depending on the kind of car and year of purchase; the bigger and newer the car, the higher the difference in premium quotes. And we have only explained to you the differences between insurers’ quotes and that of one web aggregator. There are other channels to buy insurance—like car-dealers, insurance brokers and retail/corporate agents. Where do you really get the best quote and how can you save on premium? Read on.

In our Cover Story, “Save on your Car Insurance” (22 September 2011; http://tinyurl.com/l6fqptm), we had mentioned the case of a customer, Sarita Agarwal, who was close to renewing the insurance on her 2006 Honda City ZX VTEC vehicle with her existing insurer ICICI Lombard General Insurance. She was quoted a premium of Rs8,138. However, when she looked around, Bharti AXA offered a quote of only Rs5,378, through the same Honda dealer—a good 34% less. In this case, the Honda dealer was able to offer 50% discount on the basic premium rate of Bharti AXA. ICICI Lombard couldn’t match it and Sarita changed her policy to Bharti AXA. Specific channels may have the authority to give discounts up to a certain extent which may be lower than the discount allowed by another channel.
 
The Channels of Conflict
It is clear that buying car insurance is not an easy task, if you want to get the best deal. Even quotes for the same insurance company can vary, depending on the channel you pursue. In Sarita’s case, Moneylife found that the Bharti AXA’s agent was allowed to offer a maximum discount of 40%, while Honda dealers could allow a 50% discount. Other Honda dealers initially offered 45% discount and later agreed to 50%.

Unlike health insurance, where a change from one insurer to another (portability) does not let you carry across NCB, and life insurance, which is a long-term contract, auto insurance is price-sensitive as NCB can be migrated easily to a new insurer. Car insurance premiums are like stock market prices which keep fluctuating. Moreover, there are several parameters which change the premium. You need to compare apples with apples as an intermediary may lower the premium by changing one or more parameters. Fixing some of the parameters incorrectly can even be detrimental to your claim.

There are numerous channels to buy car insurance today, but there is no best solution. Comparing the premiums on web aggregator sites like Policybazaar.com or Insurancepandit.com is a good starting point. Checking the insurance company’s online quote for the selected insurers can be the next step. But, some insurers may not offer online quotes. Getting quotes from a car-dealer, insurance broker and a corporate/individual agent can ensure that you are covering all the bases. Insurance companies may offer discounts through a specific channel; in other cases, a channel may forego a part of the commission depending on the relationship with the customer, which translates into a lower premium. According to Avadhoot Mavlankar, principal officer at Shinrai Insurance Broking, “The competition is so stiff that no one can assure that his price is the lowest. This is a combination of various factors like entry of new players, year-end pressures or need to grab market share, etc.”

Online Options
Online life insurance term plans have grabbed attention due to the amazingly low premiums, compared to offline plans. You can save as much as 50%-70%. Online health insurance can yield a saving of 10%-15% on the premium. The premium rates for life and health insurance are static, but car insurance rates are dynamic. Online may not always be the cheapest, but Policybazaar.com and Insurancepandit.com are good options to get comparative quotes.

The online channel is worth exploring as some insurers offer purchase and renewal on their website with discounts. According to Amitabh Jain, head customer service – motor, ICICI Lombard, “We follow a risk-based pricing approach and offer the same motor insurance premium for a common risk across all channels. However, for customers transacting online (ICICI Lombard website), we offer an additional 2.5% discount on the own damage premium component.” Some insurers do not like to explicitly specify the discount for online channels because that may affect the business of other kinds of channels.

We found that online premium quotes for HDFC ERGO were the same on web aggregator sites and the insurer’s website. Moreover, a call to the insurance company agent revealed that the premium offered by him was also the same as that offered online. According to Karan Chopra, head – retail business group, HDFC ERGO: “We offer the same premium rates irrespective of the channel and volume of business. There are no additional discounts offered through car-dealers. All discounts available for buying a policy offline are available online as well.”

According to Madhukar Sinha, national head, personal lines, Tata AIG General Insurance: “We have the same rate structure for all the channels including car -dealers. They may play around with the overall on-road price of the vehicle, but the insurance premium remains the same.” But, it may not be so for other insurers.

Car-Dealers
Car-dealers offer lucrative deals on car insurance to entice you to make a buying decision. Often, insurance is offered free for the first year. Needless to say, the car-dealer has kept enough profit margins to be able to give these freebies. Will the car-dealer offer more discount than, say, a broker or an agent?

According to Dr Amarnath Ananthanarayanan, CEO and MD, Bharti AXA General Insurance, “The rates for insurance differ based on quite a few factors including zone (location), car make and model, past claims experience, costs of distribution as well as other things. So there can be differences in pricing across various customer segments, locations as well as distribution channels.” A car-dealer is an important channel of insurance selling and, hence, insurance companies vie to make competitive offers with deep discounts based on the volumes of business given by a car-dealer. But it cannot be a norm. The car-dealer’s offer does not have to be the lowest, as you are an almost captive customer, once you decide to buy a car. Car buyers may not research for insurance price at the time they buy a car, since it is easy to buy right there and is a small part of the cost of the car.

If you buy car insurance from the dealer, ensure that the dealer’s garage has a tie-up for cashless handling of claims. According to Mr Mavlankar, “Normally insurers claim that they have a cashless tie-up with a particular service centre. But due to changing business equations that tie-up may not be very strong. It is in the interest of the customer to verify with the dealer whether he has a cashless tie-up with that particular insurance company.”
Once you have confirmed that the car-dealer of your choice has cashless tie-up with a specific insurer that you are interested in, you still have an option to buy insurance from the car-dealer or other channels depending on the price, service and other factors. Mr Mavlankar says, “I emphasise that price should not be the only yardstick; the client should evaluate who will support him the best at the time of claim. What matters the most is the perception of the customer who may be even ready to pay a higher price if he perceives that advantages are greater than the price differential.”

Dr Amarnath says, “Bharti AXA has over 2,000 cashless tie-ups with its partner garages and workshops to offer easy accessibility. Our customers can go to any of our network garages for cashless claims. So it really does not matter where you buy your insurance from.” Yashish Dahiya, CEO, Policybazaar.com, says, “The cashless option is at the discretion of the garage; thus, if it has a cashless tie-up with an insurer, irrespective of the place you have bought the insurance, the claim process would be similar.”
 
Brokers & Agents
Agents represent the insurance company while brokers represent you. Brokers have more responsibility than agents to avoid mis-selling. The insurance company agent can give you quotes for one company and it will be tedious to call numerous agents to get comparative quotes. Another problem is ‘channel conflict’.

Insurance brokers are an option for an unbiased view of different products and companies when buying insurance, but how many customers are even aware of which insurance broker to approach, unless they are car-dealers as well? The broker channel is still in its infancy for the Indian retail customer. Even though brokers can give quotes from all the insurance companies who have products to suit your needs, don’t be surprised if they gravitate toward specific insurers of their choice based on their being able to offer better discounts depending on the volume of business they garner.

But, even a broker’s best offer does not have to be the best. Mr Sardesai has confirmed this from experience. The lowest quote he got for his Tata Nano from one broker was from Future Generali at Rs2,624, which is Rs201 more than the lowest online offer on Policybazaar.com. Moreover, Future Generali does not give online quotes for policy purchase on its website. It only gives it for policy renewal online.

What Drives Your Premium?
Customers are confused over what ‘third-party’ (TP) or ‘own damage’ (OD) insurance means and what exactly is covered if it is one’s own fault in an accident or the other driver’s fault.
Try asking a few questions on insurance to a car salesperson and don’t be surprised if you receive half-baked responses. The TP liability cover, which is mandatory in India, does not provide any benefit to the insured; however, it covers the insured’s legal liability for death/disability of TP loss or damage to TP property. The insurer of the offending vehicle will pay for damages under the section ‘TP property damages’ up to a maximum limit of Rs7,50,000. For bodily injuries and death, the cover is unlimited. TP cover is under regulatory tariff. Even though the premium has been hiked recently, the premium is a steal for customers considering the unlimited liability it covers.

OD cover entitles you to claim compensation, in case of loss or damage to your vehicle due to burglary, flood, fire, earthquake, riots, terrorist activity, etc. (Read Cover Story, 20 September 2012 “Road Accident: Know Your Financial Rights”; http://tinyurl.com/pyk5zoj).

In the Cover Story “Save on your Car Insurance”(22 September 2011; http://tinyurl.com/l6fqptm), we had given details of savings on OD premium based on the car model, location and fuel option. Today, there are many factors that help to reduce OD premium, namely, age, profession, voluntary deductible, auto association membership, ARAI approved anti-theft device and handicapped person. But, these discounts may not be offered by every channel.

Here is how you can save on your car insurance premium using the following options.

Age and Profession: In the US, car premium is high for those younger than 25 years and older than 65. In India too, insurance companies like HDFC ERGO give 10% additional discount for customers between 35 and 45 years of age and 5% additional discount for those between 46 and 60. Professionals, like doctors or chartered accountants (CA), are considered to be less risky. An employee with an office job at a single place will also be a lower risk, compared to a businessman who travels a lot, and will pay a lower premium. HDFC ERGO gives 5% discount if you are in any of the following professions: practising CA, central/state government employees, doctors registered with government, defence and para-military service and teacher in government recognised institutions.

However, Mr Mavlankar says, “Pricing as per the customer profile cannot work; how does an insurer know who drives the car? On the other hand, we have examples of owner-driven luxury cars where the office is close to the residence, but a couple of claims are made every year. There is no data available to substantiate customer profile discounts.” Unlike in US, where the insurance premium depends by mandate on the driver and the vehicle, car insurance in India is mainly based on the vehicle.

Voluntary Deductible: Voluntary deductible is the minimum amount that you declare to bear at the time of claim. When you opt for a higher deductible, you are eligible for a higher discount and, hence, lower premium. In the case of Mr Sardesai, Bajaj Allianz’s online premium quote for the Nano car was Rs3,079. If he opts for Rs2,500 voluntary deductible, the premium will go down to Rs2,855.

Automobile Association Membership: This fetches some discount. ICICI Lombard gives up to 5%. According to Tata AIG and HDFC ERGO, “The automobile membership discount is available to every customer, irrespective of the channel and is based on the membership of the automobile associations.” See fiaa.co.in (The Federation of Automobile Associations of India), for details of various associations based on different locations across India.

ARAI Approved Anti-theft Device: Locks, airbags, and anti-theft devices help reduce premium. ICICI Lombard gives up to 2.5% discount on installation of anti-theft devices approved by ARAI (Automobile Research Association of India).

Dr Amarnath says, “We do offer discounts on automobile association membership and usage of ARAI approved anti-theft device. This can be availed from all our distribution channels. This is under development on our website platform.”

Handicapped Person: Insurance companies give special discounts to people with disabilities on the OD premium, provided they modify such vehicles for their use. Institutions exclusively engaged in the service of the disabled also get this discount. But, they need to submit a declaration along with a proposal form.

Don’t Overdo: There are several other parameters which one can manipulate to reduce the premium—Car IDV, NCB, personal accident (PA) cover for unnamed passengers and paid driver with legal liability for paid driver. Be careful when you play around with these parameters; it may come back to haunt you.

Play with IDV: IDV means insured’s declared value, i.e, the current market value of your vehicle. IDV is arrived at by adjusting the manufacturer’s listed selling price of the vehicle with depreciation. As the car gets older, the IDV decreases. Check your policy for the car’s IDV. It should approximately reflect the resale price of your car at the time of insurance. The insurance company quotes allow a range of -10%/20% to +10%/20%. It means an intermediary can potentially drop the IDV of your car by 10% to 20% to beat the ‘best’ offer you may have got from another channel.

IDV can be manipulated to reduce insurance premium, but do it at your own peril. According to Mr Dahiya, “The calculated IDV is then treated as the vehicle value throughout the period of the policy, i.e., if the IDV of your vehicle is calculated as Rs3 lakh, the maximum amount of claim payable to you is Rs3 lakh. Thus, while buying the insurance policy, the consumer needs to check the IDV at which the premium is being quoted.”  

Faking NCB: Online purchase is convenient, but even if you inadvertently provide inaccurate information it can lead to claim repudiation. If the online form asks for the number of claim-free years, you may make a mistake in calculating the years. It is important to check the NCB value for the existing policy and know the NCB slab you can expect at the time of renewal, if there was no claim.

Insurers have a ‘knock-to-knock’ agreement, which means that when you claim own car damage due to the other person’s fault in an accident, it will be paid by your insurance company which entails losing your NCB. Policyholders usually do not put in small claims due to the fear of NCB going down to zero.

NCB follows the customer and not the vehicle. NCB of your old car can be transferred to the newly purchased car’s insurance policy as long as both the vehicles are of the same class. It means you cannot expect NCB to be transferred from the Tata Nano you sold, to a Mercedes Benz you purchased. You should disclose your claims history, when you change your insurance company. When there is a claim, the new insurer can contact the previous insurer to verify your history. If there is any discrepancy, your claim can be rejected.


Ignoring PA Cover: As a rule, car insurance covers include a PA cover to compensate for bodily injury or death of the owner-driver which costs Rs100 for a Rs2-lakh cover. It is part of the mandatory TP cover under regulatory tariff. It is beneficial to have separate PA cover policy to ensure that you have a decent cover. The compensation given varies with the nature of disability. Accidental death will pay the full sum insured.

PA cover for unnamed passengers is optional and, hence, many insurers may not include it in the quote to make the premium look attractive. But, do not skip on this cover. It is not a part of OD cover. The passengers in your car may not have own PA cover and, hence, need protection. The maximum number of co-passengers you can cover under this provision is determined by the seating capacity of your vehicle. By paying a premium of Rs100, you can cover four unnamed passengers for PA benefits of Rs50,000 each. You can buy up to Rs2 lakh cover with additional premium. PA covers can also be availed for paid drivers and employees by paying additional premium.

One Moneylife columnist got an online quote of Rs10,032 for his Toyota Innova policy renewal with HDFC ERGO. When he called the insurance company, an agent came to his home and gave a figure of Rs9,639 with an offer of Rs5 lakh PA cover ‘free’. Enticed with the ‘free’ PA offer, he signed up. The policy documents show insurance premium of Rs9,077 and the ‘free’ PA cover at Rs562. It means that the ‘free’ PA cover was not really free. According to the Moneylife columnist, “The ‘ethical’ HDFC ERGO agent did me in. The sales guy gave me one number, saying PA for Rs5 lakh is free. I now see that it has been forced on me.”

HDFC ERGO has indicated to Moneylife that the premium rates are the same across all the channels. If so, one way to justify the difference of almost Rs1,000 in the online premium of Rs10,032 and agent premium of Rs9,077 is the play with IDV. Closing the sale with ‘free’ PA offer is mis-selling. Moreover, impact of IDV reduction should be explained to the customer as many are unaware of even what it means.

Risking Legal Liability to Paid Driver: You may be legally liable to pay your driver in case of an accident. Again, this is an optional part of insurance and the insurer may not add it in the quotes to show low rates. It is not part of OD cover. You never know when you may need a driver on a temporary basis and it will be an issue, in case you have not taken this cover, which costs just Rs50.

When you purchase it, the insurance company indemnifies the insured against the insured’s legal liability under Workmen’s Compensation Act, 1923 , Fatal Accidents Act, 1855, or under ‘common law’ and the subsequent amendments of these Acts in respect of personal injury to any paid driver and/or conductor  and/or cleaner while engaged in the service of  the insured.{break}

Faking NCB To Save Insurance Premium: There Is No Point!

No-claim-bonus (NCB) for mediclaim or car insurance is given as an incentive for not making a claim. Car insurance NCB can be easily transferred to the new insurer. Resist the temptation to save on premium by faking the NCB while moving to a new insurer, else you will face problems when a genuine claim is filed. Amit Kumar (name changed) fell for a glib-talking sales agent who nudged him to get NCB discount even though Mr Kumar had made an insurance claim that year. The agent said that Mr Kumar had nothing to worry as he was switching the insurance company and that he would ‘manage it’.

Manipulation of NCB is a major cause of claims denial. Don’t get lured by agents to ‘fix’ your NCB and give good premium rates. The insurance company may just play dumb until there is a claim, even though they should validate the NCB claimed by the customer at the time of underwriting. It is as though the insurance company is underwriting with the understanding that they don’t have to pay the claim. Giving any amount of discount in this case is still profitable for company. There cannot be anything more risk-free for the insurer!
Mr Kumar again changed the insurer after fixing his NCB. He met with an accident and Royal Sundaram contacted prior insurers and found out about the ‘fixed’ NCB. After the claim was rejected by the insurance company due to misrepresentation, the insurance policy is technically no longer valid. Mr Kumar did not get any response from the company about the status of the policy. He was kept in limbo for a few days until the insurer Royal Sundaram agreed with Moneylife that the issue needs to be closed to ensure that Mr Kumar is covered, going forward.

Royal Sundaram agreed that they would make a decision on underwriting a fresh policy, or recover the NCB amount, to continue with the existing policy. If not, Mr Kumar will not have any cover in the interim, which can be a huge liability for him considering that he has been meeting with an accident almost every year! No one should drive a car that is not properly insured.{break}

Moneylife Survey: Car Dealers Have an Edge

Our online survey on car insurance shows that car buyers are loyal to the car-dealer rather than the insurance company, due to the ‘free’ insurance they offer while purchasing a new car and the ‘freebies’ in subsequent years as well as the hope that the claims experience will be smoother.

Our survey received responses from 427 readers. Only 27% of the respondents have used web aggregator sites like Policybazaar.com to compare car insurance premium. Two out of three have not compared the quotations of the premium for online renewal/purchase from the same insurance company. Guess who holds the trump card for insurance selling? It’s the car-dealer.

Over 61% said they would renew car insurance with the existing insurer. Interestingly, only 11% feel that the car-dealer will give them best quote at the time of purchase or renewal. Four out of 10 said that they buy or renew car insurance from car-dealers believing that claims handling will be smoother. A few stick with car-dealers due to fear of unwarranted charges or delay in service. Some respondents opt to buy from the insurer based on manufacturer’s recommendation.

At the time of renewal, three out of 10 respondents listen to tele-callers from rival companies. One out of three respondents uses online web aggregators. Two out of three will talk with friends or insurance advisors.

Only 42% of the respondents were aware that some insurers offer discounts based on profession, age group, automobile association membership and anti-theft device. A good 60% are aware of meaning of ‘IDV’ (insured declared value) of the car. Checking of ‘NCB’ (no-claim-bonus) is done by 75% of the respondents every time the car insurance is purchased or renewed. Unfortunately, almost half of the respondents are unaware of the protection offered by ‘own damage’  cover; only one out of four lacks awareness of ‘third party’ cover.

Comments
PARTHEEBAN J
5 years ago
semma
Girish Kodashettar
8 years ago
Good one.
There is need for similar one for 2-wheeler insurance. Almost everyone (Insurer, intermediaries,customers and even media) think it is not so important or significant to spend time researching.
Claim experience for two wheeler (worse) is never like it is for car (better).
It seems everyone is not so serious about it because of the money involved in every transaction (purchase price, service / repair cost, insurance, claim amount, premium revenue, commission etc). But volumes are too high (small value & huge no.) and proportionately premium paid is not small (compared to smaller IDV of a bike); so can't be ignored.
raj
Replied to Girish Kodashettar comment 8 years ago
good point. there are many uninsured 2-wheelers, which is a big risk. Need to buy TP liability cover and if possible Own Damage too
R Balakrishnan
8 years ago
An education for us. Hope people read it and get wiser. Again, goes to show that the insurance salesman is one to be scared of. In a city like Bombay, makes sense to just insure for 3rd party liability.
raj
Replied to R Balakrishnan comment 8 years ago
thanks. But, Own Damage cover is important too. e.g. NCR has highest rate for car theft.
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