Save on your Car Insurance

The insurance channel from where you buy, your vehicle, and your personal profile can reduce your car premium rates. An exhaustive analysis of car insurance

Earlier this year, Sarita Agarwal (name changed) 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 inquired about the premium from other insurers, she was told that Bharti AXA General Insurance charged only Rs5,378, through the same Honda dealer—a good 34% less. Bharti AXA’s rate was the lowest—but there were others too who quoted lower than ICICI Lombard.

There is usually some difference in premiums between different companies. But this has usually been small; and, if customers did negotiate, companies have been known to try to match the rivals’ offer. Also, the difference has not been such that it spurs customers to change their insurer. 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. Unlike health insurance (where portability has not yet been implemented) and life insurance (which is a long-term contract), auto insurance is price-sensitive as the no-claim-bonus (NCB) can be migrated easily to a new insurer.

According to an official at Arya Honda, an authorised dealer for Honda vehicles, “Each insurance company gives us the authority to offer discounts on different models. In this case, Bharti AXA allowed us to give up to 50% discount, apart from an NCB of 45% for Sarita. It has made a big difference with respect to the premium offered by the other insurance company (ICICI Lombard). But there are cases where customers do not switch even if there is a substantial difference in the offered rates. It depends on the customer.”

Dr Amarnath Ananthanarayanan, chief executive officer & managing director, Bharti AXA, told Moneylife during an interview (earlier this year), “We have the data to understand trends using complex algorithms. The pricing is based on the car make, model, year, place and so on. If there are good customers, based on the parameters that we analyse, the rates go down and vice-versa.”

Car insurance pricing is based on market opportunity, risk assessment and claims experience of the insurance company—apart from other factors like the channel (used for buying insurance), the vehicle and your profile. Let’s look at these factors in detail and how you can benefit from them.

Who Should You Buy Car Insurance from?
If the car insurance buying process were transparent, it would have been easy for customers shopping for it.  According to Deepak Yohannan, chief executive officer,, “There exist differences in the premium rates offered for the same plan from different sourcing channels. The customer has no way of knowing where the best rate can be obtained. Yes, this is currently intentional, but I see this practice gradually disappearing as the customer becomes more aware of the options which are on offer.”

Most of the customers rely on insurance offered by car dealers, but it may not be the optimum premium in many cases, according to Vijay Kumar, head–motor insurance, Bajaj Allianz General Insurance. He says, “For new vehicles, the car manufacturer does not want variations in pricing from one dealer to the other. The dealer may not be able to give additional discount. It has also to do with quality assurance and service guarantees by the dealer.”

Insurance companies woo car dealers to sell their products for new cars by offering up to 55% discount to the car dealer. The dealer will not budge on insurance premium as new car buyers usually do not shop around (for insurance) and are gullible targets for an insurance product. If the customer creates a ruckus about insurance premium (or the car price itself), dealers may sweeten the insurance premium deal as they have a lot of leeway to do it.

According to an industry source, “The strategy of the company plays a very important role in deciding whether to go for the top line or be more selective and protect the bottom line. A new company tries to grab market share and, hence, offers higher discounts while an established player would balance the top line and bottom line.”

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 too? The broker channel is still in its infancy for the Indian retail customer.

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’. Specific channels may have the authority to give discount up to a certain extent which may be lower than the discount allowed by another channel.

In Sarita Agarwal’s case, Moneylife found that the Bharti AXA agent was allowed to offer a maximum discount of 40%, while Honda dealers could allow 50% discount. Other Honda dealers initially offered 45% discount and later agreed to 50% discount.

KN Murali, senior vice president and head–motor vertical, Bharti AXA, says “We do not distinguish between the two channels. Bharti AXA has adopted the model of having multiple channels. In our business model, every channel is important to us and we would not like to discriminate between channels. However, there are certain intermediaries who give us higher business and better terms. If the intermediary is recognised as a ‘profitable’ one, he may have some small advantage in terms of rates.”

Other insurers have confirmed that in multiple distribution channels, the volume of business that each channel brings in does make an impact on the premium offered and, hence, this is a common practice in the car insurance industry.

Comparison and purchase from Web aggregators like, and is easier in life and health insurance. According to Akshay Mehrotra, chief marketing officer,, “Motor insurance rates are tougher to offer than, say, health or travel insurance. So those are the areas where insurers integrate first. Channel conflict is common. In theory, most insurers have a rack price and a lowest available rate, which is usually available online or through aggregators, but in practice, based on distribution muscle and negotiation, discounts vary, so it helps to shop around, for now at least.”

Elaborates, Yashish Dahiya, chief executive officer,, “There is reluctance from the insurer to share car insurance premium. The transparency we bring may not be appreciated in some cases. There are also differential discounts offered through different distribution channels. We have been working with insurance companies and, very soon, will be able to give proper comparison rates for eight or more car insurance policies.”

Mr Yohannan says, “Insurers are reluctant to share car premium with any third party. Increasingly, insurance companies are now offering Web services which give access to the real-time rates displayed on their websites. However, this will not solve the problem of differential rates being offered. With increasing awareness, consumers would start questioning any large differential which exists between different channels—especially when it is not publicly available.”

Bajaj Allianz General Insurance indicated that it shares car premium data with IRDA (the Insurance Regulatory and Development Authority) licensed Web aggregators and brokers. Royal Sundaram General Insurance does not operate through Web aggregators. Another company which does not seem to be happy with Web aggregators is ICICI Lombard. According to Amitabh Jain, vice president–customer service motor, ICICI Lombard, “Web aggregators provide the user an option for comparing insurance premiums across the industry. They generate the comparisons with the least possible number of common variables used by the insurance companies. Hence, the insurance rates seen on Web aggregators’ sites might vary from the actual rates offered by the insurers, given that certain variables might not have been taken into account. Also, car insurance premiums change frequently and sometimes the aggregator websites may not reflect the more recent rates.”

The online channel is worth exploring as many insurers offer purchase and renewal on their website with discounts. According to industry sources, “ICICI Lombard offers 2.5% discount for online transactions.” Insurers do not like to explicitly specify the discount for online channels to avoid conflict with other distribution channels, whose business will be impacted due to online channel purchases.

According to Avadhoot Mavlankar, principal officer, Shinrai Insurance Broking Service Pvt Ltd, “The differences of rates is smaller in the current scenario compared to earlier days when the difference was higher. An individual agent may get 40% discount, while the dealer may get 42%, on a case-to-case basis. Customers give undue importance to just one aspect, namely, premium. They need to understand who will support them best at the time of claims—an agent or a broker who may have served them for years or it may be a dealer who has an authorised service centre of that vehicle and gives good service.”

Buying a Car? Check the Insurance Practice

According to Anurag Rastogi, vice president–actuarial, Bajaj Allianz, “Prior to 2007, the type of vehicle (private car, two-wheeler, commercial vehicle, etc), vehicle age, engine capacity, price and zone of registration were (the parameters) used for pricing the premium.”

Car models: After insurance pricing was de-tariffed, additional parameters like car make/model came into the picture. Insurers discovered that it was a great differentiator as some car models were highly profitable while some were loss-making.

Mr Mehrotra says, “The more expensive cars tend to carry higher discounts. This is because the more expensive cars are usually driven by chauffeurs or more experienced drivers, while the cheapest car is driven by the less experienced. Tata Indica, Tata Sumo, Toyota Qualis and Chevrolet Tavera are mainly used as rental vehicles and, hence, insurers charge higher premium.”  According to insurance industry sources, “Most insurers including Tata AIG General Insurance are reluctant to insure the Tata Indica, but are willing to insure new models like the Tata Aria or the Manza.”

Indians are not used to buying cars based on insurance premium, but knowing that, insurers are averse to insuring certain vehicles that are usually used for commercial purposes or long-distance driving. It may mean higher premium for these vehicles even if you intend it for personal use and so usage is limited.

According to Mr Mavlankar, “Usually, all high-end vehicles fetch good discounts on insurance—Toyota Corolla, Altis, Camry, Prado, Honda Civic, Accord, Mercedes-Benz, etc. However SUVs (sports utility vehicles) and MUVs (multi-purpose utility vehicles), like the Toyota Innova, Mahindra Scorpio, etc, don’t attract the same discount. Most private insurers do not underwrite these vehicles if they do not have proper anti-theft devices, since theft claims are a major concern for these vehicles. Some insurers underwrite the premium only if the vehicle is part of a corporate fleet.”

However, it may not be true that luxury cars always attract a higher discount on insurance. Vijay Kumar, head–motor insurance, Bajaj Allianz adds, “High-end vehicles are increasingly being used on city roads for daily commuting in contrast to the trend a few years back where high-end vehicles were sparingly used. As a result, these vehicles are more prone to accidental damages leading to a higher burden on the customer and insurer.”

Moreover, cars that use imported spare parts will attract a higher premium. This is true for small cars too. Imported components are used for small cars from manufacturers like General Motors, Toyota and Volkswagen, among others.

Location: The definition of a ‘zone’ given under the IRDA motor tariff was too broad and the whole of India was divided into just two zones and claims experience was very different within the same zone. Insurers have started using the location of policyholders as a selection parameter to fine-tune premium rates, based on claims experience. Cars used in non-metros attract a lower premium. According to an industry source, “Some geographies are more prone to theft and accidents than others; hence, the differentiation in premiums. Some companies limit it to zones and regions while others go more granular and drill down to state or city levels.”

There are some pitfalls here. According to Mr Mavlankar, “Not all insurers give importance to zones as the vehicle registration process of various Road Transport Offices (RTOs) is itself not clean and transparent. The registered address (of a vehicle) may not be authentic.” In Mumbai, one can notice cars registered in Thane used by residents of Greater Mumbai. This is done to evade taxes. In the US, the police check car plates in the night for parked vehicles. If they find a car plate registered outside the state present in their state of jurisdiction for a number of days, the owner will get a notice asking for change of registration, or face a penalty.

Fuel option: The premium for cars that run on petrol is lower than the premium for those that run on diesel, compressed natural gas (CNG) or liquefied petroleum gas (LPG). The reasoning is that a person who opts for a diesel engine clocks higher usage and probably uses the automobile as a commercial vehicle. Diesel engines also have higher maintenance and repair costs. As a result, these variants experience high claim ratios for insurers. A diesel car’s premium could be 10%-15% higher than that of a petrol car.

According to Mr Jain from ICICI Lombard, “Vehicles which spend more time on the road are generally referred to as ‘riskier’ vehicles. Also, certain vehicle models with characteristics like seating capacity, fuel type, etc, are indicative of specific customer behaviour as far as usage of the vehicle is concerned. Based on this, the premium amount charged for them also varies.”

Security and safety systems: Locks, airbags, and anti-theft devices help reduce premium. Mr Ananthanarayanan says, “The challenge is more from car thefts rather than accidents. The northern region of India is more loss-prone. Security features in the car will help reduce premium.” That is another good reason to go with a comprehensive insurance policy (CIP) and not just third party (TP) insurance.

According to, “In India, the most stolen cars are usually the ones that have a reasonable resale value such as the Maruti Suzuki Swift, Maruti Suzuki Alto, Mahindra Scorpio, Tata Indica, Mahindra Bolero, and Tata Sumo. According to a survey, vehicles like Toyota Qualis and Tata Sumo are in great demand in south Indian states and the car stealers offer them at prices that are much lower than the market rate.”

If the customer can prove that his car is parked in a secured parking space, the insurer can lower the premium. It is worth negotiating with a car insurer after declaring as much information as possible about your vehicle and customer profile before the purchase, as these details can impact insurance premium.

Too Futuristic?
There are two major impediments to implementing profile-based pricing—the existing law and availability of data. The insurance contract, as of today, is still for the vehicle, not for a driver. IRDA will have to approve the change to capture information of one or more drivers and make the insurance specific to those allowed to drive the car.

Mr Rastogi says, “To be able to implement customer profile-based differential pricing, insurers need customer data for a significantly long period to ascertain the driving risk of different segments of policyholders.” This seems to be a major hurdle.

According to Mr Murali, “There is no repository of authentic data regarding age of drivers and accident track record. Even RTO records are not automated across the country. Each insurer has to develop its own data and project loss ratios through the actuarial model. Bharti AXA is working on such data and would like to provide a scientific rating tool—it will ensure that customers with a clean record will not cross-subsidise those with a bad record.” Mr Jain adds, “We are trying to capture maximum information possible, which shall, in turn, be used for offering differential pricing.”

According to a senior IRDA official, “IRDA does not have a common database on driver-specific information. However, in the future, this will be a critical component for the driver’s liability insurance.” Even if this data were made available or insurers developed their own systems to accurately assign premium for specific customer profiles, there will be other implementation issues.

According to Mr Mavlankar, “In case of OD claim, who will verify the details of who was driving at the time of the accident? Currently an FIR (first information report) is needed only in case of TP claims and theft claims. It’s totally impractical to insist for an FIR for each OD claim. For TP claims, the above amended drivers’ clause will hold no significance as the Motor Vehicles Act needs to be amended—which looks impossible now.”

According to another senior official from IRDA, “While at the current juncture, filing of an FIR is not necessary, going forward, if the Motor Vehicles (Amendment) Bill is passed by Parliament, then suitable changes in the procedures will have to be undertaken in order to give effect to the new provisions.”

He adds, “It is true that until the Motor Vehicles Act is amended the driver’s clause will not be of any significance. The Sundar Committee has submitted its report on road safety and management to the ministry of road transport & highways and one of the recommendations is the amended driver’s clause. We are hopeful that Parliament will consider this amendment as it will fix responsibility on the person responsible for negligent driving.”

Once the amendment is passed, a separate premium table only for drivers may have to be worked out keeping in mind the driver’s experience, educational qualifications and factor in the frequency of change of the vehicles being driven, among other parameters. Perhaps the concept of NCB can be introduced for a driver’s third-party policy for claim-free years, as an incentive.”

What if your friend or relative wants to occasionally drive your car? Do they register that on your insurance contract? An insurance company has indicated that it would reject a claim if the driver at the time of accident is not on the contract (when IRDA implements driver-specific insurance).

7 Key Points about Motor Claims
1. Policyholders think that insurance covers only third-party liability and damage to own vehicle. Some insurers may even charge additional premium for insuring passengers. But a CIP (comprehensive insurance plan) covers persons travelling in a private car or pillion of two-wheelers (provided such occupants are not carried for hire or reward).
2. Disclose your claims history when you change your insurance company to get a lower premium. When there is a claim, the new insurer will contact the previous insurer to verify your history. If there is any discrepancy, your claim can be rejected.
3. NCB of your old car can be transferred to the newly purchased car’s insurance policy.
4. Insurers have a ‘knock-to-knock’ agreement, which means if you claim own damage due to the other person’s fault in an accident, it will be paid by your insurance company which entails losing your NCB.
5. Check your car’s IDV. It should approximately reflect the resale price of your car at the time of insurance. It can be manipulated to reduce insurance premium, but avoid it.
6. Ensure you have all the papers of your motor insurance—insurance certificate, policy wordings and claim forms. You should get it within 15 days of processing. It is the only proof of insurance.
7. While selling a car, you need to put the date and time of sale on the memorandum of understanding. Accidents can happen on the same day—used cars are traditionally used by drivers who are novices.

Lax standards: Americans love cars, Indians flaunt them
But you have to shell out much more for a policy in the US; you are better off here

A car is not a car. It is a status symbol everywhere in the world. Many believe that the car colour and the type of car you choose for yourself directly reflect your traits and your personality. Indians buy cars in different segments from the much-hyped price tag of the Rs1 lakh Tata Nano to the whopping Rs16 crore for the Bugatti Veyron.

The new and used car markets in India are growing. Car loans have made it easy for a person with a limited budget to buy expensive cars. The launch of the Nano was a historic moment. More and more customers in the middle-income segment today are upgrading to high-end vehicles, even if it involves stretching themselves financially. Today, Bollywood stars are living it up like Hollywood stars.

The good news is that car insurance in India is much cheaper than in the US for the same value of car. In the case of Sarita Agarwal’s car, Bharti AXA’s annual premium was 1.26% of the depreciated insured declared value (IDV) of the car. In the US, the annual insurance premium is more than 10% of the current value of the vehicle. There are numerous reasons for this, including the legal system that gives high compensation for disability injuries or death, high medical costs, high cost for car repairs and so on. In India, in some cases, drivers walk away scot-free even after a major accident. Moreover, the tariff for third-party (TP) car insurance is specified by IRDA. The loss ratio for insurers in this category was 180%, which means that for every Rs100 of premium collected, Rs180 of insurance claims were paid. Recently, IRDA has hiked the premium which may bring down the loss ratio to 150%.

The bad news is that good drivers in India are cross-subsidising bad drivers. The insurance is still specific to the vehicle, not the driver. Customer segmentation has just started but, to implement it fully, it needs the approval of the insurance regulator which, in turn, will need a change in the insurance contract and even an amendment to the Motor Vehicles Act. (See box: Matching Profile to Pricing)

Rate driver: Driver, not car insurance

Good drivers are now subsidising bad drivers. Will that change?

India has car insurance. What it should also have is driver insurance, as in the US. Recently, IRDA chairman J Hari Narayan said: “In other countries, the driver is insured as accidents are caused by drivers and not the vehicles and I think we will get there (insuring the driver)." According to Vijay Kumar, “By providing a little more information, policyholders can significantly reduce their car insurance premium. Bajaj Allianz has already started encouraging more information to lower the premium.” A senior IRDA official adds, “While most of the insurers do not charge premium based on the profile of the policyholder, some insurers are considering the age of the policyholder for the Motor-Own Damage (OD) Section.” HDFC Ergo General Insurance gives 5% discount on OD premium for age 36 to less than 46 years and 10% discount for age 46 to 60 years. It also gives 5% discount on OD premium to doctors, chartered accountants (CAs), teachers and government & defence employees.

Some insurance companies may offer discounts on a case-to-case basis, if the customer asks for it (and providing supporting documentation), but insurers cannot offer different base rates for different age groups, as of today. The key here is that the customer has to ask for it. Insurers do want customers with a profile that they consider ‘safe’ to do business with. Getting the maximum discount allowed for a particular channel may need negotiation. Remember, every distribution channel is allowed a specific discount that it can pass on to a customer… if demanded.

However, Mr Mavlankar says, “Customer profile discounting cannot work today as the owner may have a ‘good’ customer profile (like a middle-aged doctor), but how does an insurer know who drives the car? The driver may be a chauffeur; or a family member could be driving 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.”

Mr Murali adds, “Insurers are working on rating factors around the vehicle owner/driver. Indian markets will move towards rating of risks based on customer profile. We are trying to create complete information about owners, drivers, etc, based on the data of one million policies that we have written. AXA, which has been in business in developed markets, has been supporting Bharti AXA in this initiative. We are confident of moving to risk-based pricing once the segment is totally opened up.” How would it benefit you?

Age: In the US, car premium is high for those <25 and >65 years. Will the same happen in India, if IRDA adds driver information to the insurance contract? Mr Murali says, “The age group of 30-60 is very favourable for our business.” In India, the practice is to give only the basic vehicle information and no information on the driver. If the premium is charged based on the age of the driver, obviously, the drivers in the age band getting involved in higher number of accidents will have to pay higher premium.

Marital status: Mr Murali adds, “It is expected that a married person gains maturity over age and would be ‘extra’ careful while driving a vehicle, considering the responsibility of the family that he shoulders.”

Occupation: Professionals like doctors or CAs are considered to be a lesser risk. An employee with an office job at a single place will also be a better risk compared to a businessman who travels a lot.

Credit history: An individual’s track record regarding payment and defaults has been used in developed countries for calculating car premium. Owning a home translates into a responsible and stable status in most cases. 

Distance travelled: If the distance of commute to work and approximate annual travel is declared, many US insurers consider it for reduced premium. According to Amitabh Jain, “The area of operation/distance expected to travel (for work) is one of the factors considered for deciding premium. There are certain practical challenges to obtaining accurate information on this front.”

According to Mr Rastogi, “The Indian industry is moving towards this form of pricing at a fast pace and insurers are making an attempt to capture some or all of this information from their customers. If the information available is less, all policyholders will pay an average price for insuring their vehicle and good ones will cross-subsidise the bad ones—similar to the situation that prevailed in the tariff era.”

He adds, “Insurers were not collecting any detail from customers apart from vehicle details and place of vehicle registration. At times, the proposal forms contained several questions that were most often left blank. This created a culture where neither the agent nor the policyholder was willing to provide any additional information that could be used for better pricing. Now even when insurers want to collect additional information about customers, they face strong opposition from the insurance distributors coupled with policyholder apathy.”

Moneylife Survey: Driving blindly

Car buyers can do with a lot of improvement in the way they buy policies

The Moneylife online survey on car insurance from 406 readers shows that two in three readers want the premium to take into account the driver’s profile (age, profession, lifestyle, marital status)—that’s a positive. However, 26% of respondents do not understand what car insurance covers and who will reimburse them in case of an accident. Customers are confused over what ‘third-party’ or ‘own damage’ insurance means and what exactly is covered if it is one’s own fault in an accident or the other driver’s fault. And what does a comprehensive insurance plan cover? Try asking a few insurance questions to a car salesperson and don’t be surprised if you receive a half-baked response. Only 30% of respondents purchased car insurance based on the recommendation of a car dealer, which is a good sign, but 51% of respondents did not shop around for the lowest insurance rate. Car insurance is a price-sensitive business, yet this is not the deciding factor, because a large number of car owners will not change even if offered a discount. What rules is probably sheer inertia.


1 decade ago
Do you think you are paying too much for Auto Insurance?
In reality you are not the only one. enables you to share your insurance rate with others without revealing any personal identity.
It means does not require you to provide personally sensative information at all.
Your can simply compare your insurance rate with real persons in your community. wants to share this information with your families and friends.
Sharing is always Good!
We believe.
1 decade ago
is it paid advt to promote online general insurance quote websites?
Raj Pradhan
Replied to Narndar comment 1 decade ago
have you read all the five pages of the article? the first page clearly states that online quotes of car insurance are not accurate. don't rely on web aggregators. how does it promote them? you need to read it carefully. don't write stupid comments before reading the full article of 5 pages. be happy that you are getting detailed study of car insurance which no one has done & that too for free reading.
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