General Insurance Industry moves into free-pricing regime

Till Jan 1st 2008, the company from where you took a policy did not matter as the premium that you paid for general insurance including automobiles such as cars, scooters and motor cycles were the same. What was different from the companies was the service, ability to pay over the phone, internet, credit card, cashless facility in case of claims, speed of processing claims, branch network etc.

However from January 1st 2008, insurance companies can have a different pricing policy for the same terms and conditions which will be the same across companies now. However, from April 1st 2008, insurers will also have the flexibility to change the terms of the policy. Thus it will become imperative for one to understand what terms and conditions are being offered and the premium that one needs to pay for the same.

It is quite possible that car owners with good track records for their cars could pay lesser premium while car owners with an adverse claims record may not only be denied discounts but also have to cough up higher premium.

Typically, insurers enjoy a margin of only 7-8% on a motor policy, after taking into account claims up to 60%, administrative cost of 20% and processing charges of 10%. If there is a 20% discount, all other costs remaining constant, the company will already be in the red. This kind of pricing where the prices are lower than the current prices will not be sustainable in the long term.

New players are expected to be aggressive and build on volumes in the absence of claims data on customers.

Given that the price factor will be a determinant only till April, what are the basic features that one must look for?

1. Look at features such as after sales service, number of locations where cashless transactions are offered, surveyor network, a 24-hour helpline and additional warranties, among others.

2. Look at the terms and conditions and choose the one that fits the possible usage of the car. One should take the appropriate insurance.

3. If there is an accident over a weekend, does the insurance company send a surveyor immediately, or the customer has to wait till a Monday? Or for that matter how soon do claims get processed? How much time does a customer have to spend to recover his claim? What price is the customer willing to pay for convenience?

4. For those who who like convenience, it is better to pay a small additional amount and subscribe to a number of features than save that small amount and have trouble in settling claims later.

I am sure now that many companies will come out with different schemes of automobile insurance just like life insurance and most people will clueless in terms of which insurance policy they need to take.