A car insurance policy is a necessity as per Indian traffic laws and so understanding the policy and its premium is necessary. You should enable your customers to understand exactly what their car insurance policy covers and how is the premium calculated. While explaining the coverage is simple, it’s the premium factor which becomes technical and might be difficult to explain. So, let’s simplify the premium calculation of car insurance policies.
The premium of a car insurance policy depends on various factors which include the following –
- The make, model and variant of the car
- Age of the car
- Area of registration
- Type of coverage selected – third party or comprehensive
- Add-ons selected
- Whether the policy has been renewed on time or not
- The discounts available
These are the factors which affect and determine car insurance premiums. The premium also changes at each renewal of the policy. Usually, the premium decreases on renewals but there are certain instances when the premiums might actually increase even when your client did not make any claim. Can you explain why?
There are various reasons why your client’s renewal premiums might increase even when there were no claims in the earlier years. These reasons include the following –
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Choosing an add-on
If your client chooses an add-on which was not in the earlier policy, the renewal premium would go up. Each add-on comes with an additional premium and adding any add-on with the existing policy would involve increased premiums.
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High claim experience of the company
Even if your client did not make any claim in the earlier year, the insurance company might have experienced a higher claim volume. Due to this increased claim experience, the company might increase the premium rates of its car insurance policies and when your client renews the policy, he/she is charged an increased premium.
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Increase in third-party premiums
The premium for third-party coverage is determined by the Insurance Regulatory and Development Authority of India (IRDAI). IRDAI also reviews and changes the premium every year. So, if the third party premium rates have been increased by IRDAI, your client’s renewal premium would increase.
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Change in location
The location where your client’s car is registered also has a bearing on the premium rate. Metro cities have higher premiums than non-metros. So, if your client has shifted to a metro city and has updated the details of the car’s registration, renewal premiums would be higher as premiums would be charged at metro city’s rates.
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Not comparing when renewing
Did you know that different insurance companies charge different premium rates? If your clients do not compare the premium across different car insurance policies, their renewal premiums might increase independent of any claim made in the previous years.
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Renewing after a lapse
If your client does not renew his/her car insurance policy and it lapses, subsequent renewals might incur higher premium outgoes irrespective of claims. If the car insurance policy is not renewed on time, the no claim bonus might lapse which would drive up the renewal premium.
These are the most obvious reasons which cause an increase in your client’s car insurance premiums even in the absence of claims. To reduce the premiums on renewal, advise your clients to take the following steps –
- Ask them to choose a voluntary deductible limit. By choosing this limit they would be undertaking to pay a part of their claims themselves. This would fetch them a premium discount which would help lower the premium
- Your clients should choose the add-ons which they require. Choosing unnecessary add-ons would unnecessarily increase their premiums. Help your clients understand which add-ons would be suitable for their needs so that they can keep their premiums low
- Always ensure that your clients renew after comparing. Comparing the different premium rates would help your clients choose a policy which has the best coverage benefits at the lowest premiums
- Also, advise your clients to renew their car insurance policies on time to prevent lapse and to avoid higher premiums
Explaining these technical details which affect car insurance premiums would help your clients understand why their premiums have increased even when there were no claims. This would help your clients understand their car insurance policies better and would also help in promoting your sales. So, be informed so that you can keep your clients informed too.
