General insurers are taking their combo long-term third party and own-damage policies off the shelves as they have found it difficult to price the long- term own damage cover.

The insurance regulator has allowed them to withdraw the policies that were introduced just two years ago after a Supreme Court judgement.

The IRDAI (Insurance Regulatory and Development Authority of India) has directed general insurance companies to withdraw the long term policy of three-year third party plus three-year own damage for private cars and five-year third party plus five-year own damage for two wheelers from August 2020 citing challenges on account of actuarial pricing, affordability, forced selling and a non uniform no claim bonus structure.

Any customer buying a car can have the option of a three-year third party policy or a package comprising a three-year third party plus one-year own damage.

In two-wheelers, the choice is a five-year third party policy or a package comprising a five-year third party plus one-year own damage.

Policies which have been already issued will continue to remain valid throughout the policy period.

These will be converted to annual policies, only at the time of renewal.

“For a car, the cost of a long-term package policy was on an average 2-2.5 times the cost of any annual package. This was one of the key reasons for customers not opting for a long-term package policy,” said Shanai Ghosh, ED and CEO Edelweiss General Insurance.

“Besides, a three-year lock-in period for the customer without offering them a choice of shifting to another insurer in case of any service deficiency, is not a customer friendly proposition especially in a product which is service intensive,” Ghosh said.

She said using the experience of annual own damage claims and extrapolating it to a three/five-year period for pricing presents several challenges.

Firstly, customer behaviour of making claims over the long term of the policy is yet to be known. Second, driving behaviour of the insured may change or improve and while the benefit of this can be given in the annual policy, such changes in driving habits are difficult to ascertain and estimate at the outset, in a long-term policy.

Third, claims inflation on account of repairs by garages is also uncertain and in the context of long-term policies becomes a significant variable.

Any correction in pricing can only be implemented after gauging the overall long-term experience when it is available.