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Friday, June 24, 2011

Buying diesel cars? Get ready to pay more for cover

Insurance premium on diesel vehicles may rise by 30% as insurers plan to compensate themselves for higher liabilities in the segment, dealing yet another blow to auto sales that have been slowing due to high interest rates.
General insurance companies, facing steep losses in motor policy claims, also plan to factor in regional behaviour on claims to finalise premium, said two people familiar with the development. This will translate into customers in north India paying higher premium for damages and customers in the south paying more for third-party insurance.

"An individual travelling long distances mostly chooses a diesel vehicle, leading to higher exposure to risk, which may increase the premium," said Vijay Kumar , head of motor insurance at Bajaj Allianz General Insurance. "Fuel has become an important rating parameter with the growing preference for diesel vehicles."

Automobile insurance premium is on the rise as insurers say claims are disproportionate to the premium income. Motor claims ratio is about 75% of the insured amount for the industry. Claim ratio in thirdparty motor insurance is as high as 180% due to which the regulator has allowed a rise.

The finance ministry is also debating whether to raise the duty rates on diesel cars as consumers shift to diesel versions to escape the spiralling price of petrol.

Focus on demographic behaviour & miles driven

Car sales growth slumped to 7% in May, from a record high of 30% in March. Maruti's sales rose 1.9%, its lowest since July 2008.

"The impact on sales of diesel cars will depend on the difference in the premium charged by insurers on diesel cars as compared to petrol cars," said Rajan Masurkar , a Maruti Suzuki dealer.

Companies are factoring in features such as location, model and age, and that will soon include demographic behaviour of the driver and the miles driven. "We have already factored in location, model and age of the vehicle. We are working on creating a database for the demographic behaviour and fuel type of the vehicle," said Nilesh Garg , executive director, ICICI Lombard General Insurance .

A diesel car owner may be charged 10% loading on premium compared to a discount of 20% given on petrol-driven cars. This makes diesel motor insurance rates 30% costlier than for petrol cars. "Diesel cars are mostly used for commercial purposes and exposure to risk is higher," said Garg.

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