Buying a new car or a two-wheeler is all set to get more affordable from August 1, 2020. The on-road prices for new vehicles will see a significant reduction as a result of the Insurance Regulatory and Development Authority of India (IRDAI) withdrawing its long-term insurance package plans. The rule mandating long-term motor vehicle insurance for three or five years has been done away with, and the industry is now back to the mandatory one-year insurance period that is necessary when purchasing a new vehicle. IRDAI had originally notified its decision to withdraw the long-term motor vehicle insurance plans in June this year, after finding concerns related to the performance of these policies.
On-road prices will see a substantial reduction on new vehicle purchases from August onwards
The long-term insurance cover was introduced in September 2018 following the Supreme Court ruling, in a bid to make roads safer for motorists and pedestrians. The directive mandated buyers to purchase a combined (own-damage + third-party) insurance for a period of three years for cars, or five years in case of two-wheelers. Instead, new vehicle owners now need to buy a comprehensive cover for one year, while third-party insurance is still mandatory for three and five years for car and two-wheelers respectively.
IRDAI had previously asked the insurance companies to provide standalone own damage insurance for vehicles from September 1, 2019, as the third-party portion was already covered under the three- or five-years policy. Third-party insurance policies cost significantly less in comparison, which prompts the price reduction on vehicles.
Premium cars and motorcycles will see a greater difference in on-road prices from August 2020
The on-road prices for a new vehicle will witness a substantial reduction when compared to the current prices. For instance, a two-wheeler priced around ₹ 80,000 (on-road) is expected to be cheaper by ₹ 3000-3500. Similarly, a vehicle priced between ₹ 4-5 lakh (on-road) will see a price drop of ₹ 10,000-15,000. The reduction depends on the insurance provider and the vehicle. Please check with your preferred dealer to know the exact difference in the new and old prices on your desired vehicle.
IRDAI's withdrawal of long-term insurance packages comes at a time when the auto industry is collectively looking at a stimulus to encourage new vehicle sales. The industry saw a downturn in terms of new car and two-wheeler sales from September 2018, around the same time the IRDAI rule was mandated, while the Indian auto sector saw some of its worst months through June 2019 due to the low buying sentiment among customers coupled with the general elections. It was believed that the market will start recovering in 2020 but the Coronavirus pandemic has pushed the sector down even more. The reduction in on-road prices should be encouraging for new vehicle buyers that have been putting off the purchase for a while.
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