Vehicle scrapping policy augurs well for non-life insurers

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Life insurance.
Life insurance.

The implementation of the vehicle scrappage policy will not only give a boost to the vehicle makers and their suppliers but also to the non-life insurers for multiple reasons, said industry experts.

The reasons they give in support are: the value of new vehicles is high so the premium income will be high; all the new vehicles will have third party insurance cover as currently many old vehicles – two and four wheelers – do not have that cover; with better safety features and better road conditions the claims outgo will also be less and a new category of clients – vehicle scrappers – will be there.

Motor insurance accounts for a major chunk of revenue for the insurers.

“Growth in insurance premium will sync with the increase in sale of new vehicles. Some people may go for additional vehicles instead of scrapping their old vehicles due to reasons like sentiment and others,” Roopam Asthana, CEO and Whole Time Director, Liberty General Insurance Ltd told IANS.

Asthana said a lot of areas are to be ironed out in the case of the vehicle scrappage policy.

He also agreed that there may be a spurt in electric two wheelers as compared to four wheelers as the latter is priced high as compared to petrol and diesel powered ones.

“From insurers point of view, the electric vehicle numbers are currently low. The claims outgo may be high as the electric vehicles are mostly based on replacement instead of repairs,” Asthana said.

“There will be a premium spike initially when new vehicles are bought in good numbers and then there will be a slight dip and later the premium income will be steady. The third party premium segment will be steady,” Saurabh Bhalerao, Associate Director (Research), Care Ratings, told IANS.

According to Bhalerao, older vehicles will continue as long as the policy allows.

“A new industry – vehicle scrapping units – will come into being. That will be a new business segment for the non-life insurers,” Asthana said.

Announcing the vehicle scrappage policy in the Lok Sabha on Thursday, Union Road Transport and Highways Minister Nitin Gadkari said the ecosystem is expected to attract additional investments of around Rs 10,000 crore and 35,000 job opportunities.

India has 51 lakh light motor vehicles (LMV) which are older than 20 years and 34 lakh LMVs which are older than 15 years. Around 17 lakh medium and heavy commercial vehicles are older than 15 years without a valid fitness certificate, Gadkari said.

The vehicle scrappage policy proposes to de-register commercial vehicles after 15 years in case of failure to get the fitness certificate. As a disincentive measure, increased fees for fitness certificate and fitness test may be applicable for commercial vehicles 15 year onwards from the date of initial registration.

The private vehicles are proposed to be de-registered after 20 years if found unfit or in case of a failure to renew registration certificate. As a disincentive measure, increased re-registration fees will be applicable for private vehicles too after this period.

The government also proposed that all vehicles of the Central government, state governments, Municipal Corporations, Panchayats, State Transport Undertakings, Public Sector Undertakings and autonomous bodies with the Union and State governments may be de-registered and scrapped after 15 years from the date of registration.

In the next few weeks, draft notifications will be published and be in the public domain for a period of 30 days to solicit comments and views of all involved stakeholders, Gadkari said.

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