Friday, October 17, 2008

Insurance is usually considered the concept of bearing risks which ultimately lead to family protection, important adjunct to trade, commerce and industry, loss prevention, contribution to national economy and mobilisation and investment of funds. The development of the insurance sector, however, depends on the growth of other economic sectors and also purchasing capacity of the people.
The trend of insuring vehicles owned by individuals and institutions is increasing by the day. People are getting more aware of the need to insure vehicles they own due to the increasingly risky environment in recent days. Auto insurance is catching up recently as people have become more conscious that insurance can really help during difficulty.
"People like to secure their property when there is involvement of big money, unsecured and small roads and more exposure to accidents due to ineffective rules," said Archana Pathak, deputy business development manager at Shikhar Insurance that insures about 450 vehicles on an average each month.
Growth in auto insurance business stands at over 30 per cent and people are gradually realising the need to insure four-wheelers as well as two-wheelers. The increased trend of buying vehicles on finance has also contributed to auto insurance as insurance is mandatory in finance schemes.
In 2006-07 alone, premium insurance companies collected Rs 834,077,295 on vehicle insurance of their total Rs 2,854,632,365 premium collection.
According to data from Beema Samiti (Insurance Board), of the total growth in insurance sector auto insurance contributed to over 30 per cent in the year 2006-07.
The market for vehicle insurance has increased due to cheaper premium also. "This is because the insurers want to minimise the premium and try to get more when they claim," said Kewal Krishna Shrestha, CEO of Everest Insurance Company.
The insurance for commercial vehicles is even cheaper than that of private ones. A total of 17 non-life insurance companies provide auto insurance to customers currently. Beema Samiti regulates them and issues directives from time to time for their proper functioning.
However, all is not hunkydory. There are problems also pulling the growth down. "Limited market, topographical conditions, insignificant growth, low capital base of insurers, problems in re-insurance, more players, stiff competition and no compulsory motor vehicle insurance are some key factors blocking the growth of auto insurance," said an industry insider.
Competition among insurance agencies has also hit the industry hard. "There is cutthroat competition due to too many players in the small market," said Pathak, adding that some of the companies were violating the market rules with extra discounts like fleet discounts, which are only to be given if more than one vehicle in the same name is insured. "As a result, the customer has to face problems while staking a claim. Low premium exploits customers as they are misguided," she added.
The growing number of vehicles and mandatory provisions from financing institutions to insure vehicles before financing have helped increase auto insurance, according to insurance agents.In comparison to commercial vehicles, fewer private vehicles are insured due to their owners' lack of awareness of benefits of vehicle insurance.
Despite the increase in number of insurance agencies people's interest in insuring private vehicles has not increased accordingly, Pathak said and added, however, that growth was steady. "Auto insurance holds tremendous potential for growth," Shrestha said.
"Insurance premium for both private and commercial vehicles is reasonable," Pathak said adding that calculating parameters are different though. Private vehicles are judged on the basis of insured amount, cubic capacity and age but commercial vehicles are either goods carrying or passenger carrying. "The commercial vehicle thus requires seat capacity/carrying capacity which determines the premium," she added.
Similarly, time period also affects vehicle premium as depreciation decreases the value of the sum insured, which directly determines the insurance premium. Also, when renewal is done the insured amount is adjusted every year with depreciation.Auto insurance rates are tariff rates. All general insurance companies follow the guidelines of the regulator. The rates vary according to the cubic capacity of the vehicle. The value to insure (sum insured of the vehicle) and the age of vehicle also affect the premium to be paid.
"For instance, the break-up with reference to cubic capacity (cc) is below 1000 from 100cc to 1600 cc and above 1600 cc will have different rates," Pathak informed.
One can insure second-hand vehicles also. "Second-hand vehicles are also insured," Pathak said adding that it was just like insuring a first-hand vehicle. "The agency needs a copy of the blue book showing the transfer of ownership. Also, the value of the vehicle might differ due to depreciation," she said.
The there is the problem of people complaining about the lengthy process of insurance claims. "While paying premium customers want to pay less but when they claim they want to get more," grumbled Shrestha.
According to statistics, contribution of the insurance business to the total GDP stands at 1.09 in the year 2005-06 and this contribution is gradually increasing. In the year 2006-07, it is expected to contribute a little above two per cent to the total GDP.

Growth trend of auto insurance in total insurance

2001-02 – 18.15 per cent

2002-03 – 20.34 per cent

2003-04 – 25.54 per cent

2004-05 – 26.61 per cent

2005-06 – 29.22 per cent

(2006-07 – more than 30 per cent expected)

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