India is known for its two-wheeler market and is considered the second largest two-wheeler market in India. There are about 15 players in the two-wheeler industry while two manufacturing companies hold the major market share. India is behind China and Japan in terms of the number of two-wheelers that are manufactured in a year. The average number of two-wheelers per 1000 persons as studied in 2013 was about 31. But, considering the fact that the Compound annual growth rate has been increasing by a minimum of 10% every year, it is likely to be higher now. All these points indicate the two-wheeler market in India is quite big and is one that is set to keep growing. But, with two major directives by the IRDAI regarding 2 Wheeler insurance seems to have turned the tables, though it is too early to confirm. The fact though is that the two-wheeler prices have gone up.
The two-wheeler insurance
Before we delve into the details of the directives, let us consider a few things about insurance cover for Two wheelers. AS you know, it is mandatory to take up 2-wheeler insurance when you buy two-wheeler, and you need to keep renewing it every year to enjoy coverage from financial loss when there is loss or damage to or by your two-wheeler to others. The insurance coverage you can opt for is of two types.
- Comprehensive cover- This an overall coverage that covers loss and damage s that may occur during an accident to the owner/driver as well as those who are affected in the accident by the two-wheeler.
- Third party cover- It covers damage done to the third party by the two-wheelers in case of an accident.
The premium amount collected for two wheeler insurance varies depending on the cover you opt for. However, it is mandatory to have third-party coverage at least, if not comprehensive coverage as per the Motor Vehicles Act of India.
A number of insurance companies provides the two-wheeler insurance, and these insurance companies are all regulated by the IRDAI. The insurance companies are bound to act on the directives issued from time to time by the IRDAI.
The directives of the IRDAI
The two directives that came one after another in the month of September seemed to have put the two-wheeler industries under immense stress owing to the nature of the directives that would increase the insurance premium charges of the two wheelers by a huge sum. This is; even to have an impact on sales. The extent of the impact cannot be gauged as early as this, but it definitely indicates a downtrend in two-wheeler sales.
The directive -1
The IRDAI based on the directive of the Supreme court on September first directed the two-wheeler insurance companies to collect the third party premiums for five years upfront. Actually, the rule in practice was to collect it every year. The impact of the directive is that it would translate into a hefty amount that a buyer of a two-wheeler has to shell out when he buys a two-wheeler.
The directive-2
The IRDAI through a circular dated September 20 directed the two-wheeler insurance company to make it mandatory to increase the CPA or the complete personal accident cover which was around 1-2 lakhs to a minimum of Rs. 15 lakhs. It was also laid down that the sum insured should be i5 lakhs with a mandatory premium of Rs.750.
The first directive was meant to ensure that the number of vehicles plying on the road without an insurance cover is reduced. While the second directive was following the order by a Chennai high court suggested that there should be an increase in the CPA cover in a proportional manner to the escalation in hospital expenses in case of an accident. It also directed that2wheeler insurance for more than 15 lakhs also can be offered to those who want it on an optional basis charging additional premium amount on the two-wheeler insurance.
The impact
While the directives by themselves were quite sudden and unexpected, the directive two that is supposed to be implemented immediately has come as a jolt to both the manufacturers as well as the consumers. The consumers are flabbergasted to realize that the dream bike that they wanted to buy is now going to cost more than what they had planned or budgeted. For example, the two-wheeler insurance premium for the commuter segment was only about Rs.1800 till August 31 st. On September 1st following the Supreme court directive and the implementation of the same, by the IRDAI, the premium amount was about Rs.5000. After the September 20th directive, the total insurance payout that a consumer of Two-wheeler is expected to pay is about Rs.9,200. This shows that the hike translates to about five times more than what it was in August. Hough the same is applicable to the consumers of cars too, the impact seems to weigh heavily on the two-wheeler industry.
Impact on entry-level vehicle
However, the impact is profound and is expected hit the consumers of two-wheelers of bikes such as Honda Activa and Hero Splendor, etc.The situation is definitely worse for those who are keen to buy the entry-level models lie Bajaj CT 100 for which the insurance payout works out to nearly 25% of the ex-showroom price of the two-wheeler which is about Rs.35,000. This means that the Bajaj CT 100 would e costlier to the customer by an amount of Rs.8,500. This is indeed a huge sum or the class of people who wish to buy this model of a two-wheeler.
Impact on slightly higher level vehicles
For the slightly higher models like TVS Sport and Hero HF Deluxe, Bajaj Platina and TVS Jupiter, the ex-showroom price is about Rs. 35,000 – 43,000 or slightly more than that. The insurance payout for them is also around Rs.8,500. –Rs.9000. This clearly shows that the payout is only 20% of the price. The maximum payout is on availing add-on benefits offered by the 2 Wheeler insurance companies as well.
Impact on executive commuter bikes segment.
The popular two-wheelers in this segment include Hero Splendor, Honda Activa, Hero Passion, Honda Shine, etc. with the ex-showroom price around Rs.55,000- Rs.58,000, the insurance payout is around Rs.9000 which is again quite a sum considering the amount the consumer has to shell out to buy the bike already.
Impact on dealers and the industry
Since the consumers who booked two-wheeler prior to September 20 find the price to be more than what it was when they booked the vehicle, they seem to be protesting over it. The dealers are left with no other alternative m, but to explain about the directive. However, not all customers would be able to understand the situation and the fact that the dealer has nothing to do with the increase in the price. There is a chance for a crisis in many showrooms across the country.
The industry sentiment is that the increase in the price of the two-wheeler that has resulted in due to the increase in 2 wheeler insurance costs could actually have a huge impact on the commuter two-wheeler segment that is already suffering from challenging scenario at present in the form of high material prices as well as steel prices.
However, they agree that insurance needs to be mandatory.Experts feel that the directive should have been passed after giving due consideration to the fact that in India.The people who buy a car belonging to an affluent class ant the ones who go in for two-wheelers cannot be considered so, therefore, increase I the 2- wheeler premium by 20% would be a greater financial burden for those who buy two-wheelers rather than those who buy a car.
The administrators of the companies opine that in a country like India where the scooter and bike is the most preferred mode of transport, making it expensive to procure will not help in any way. It would only affect the marketing efforts of the company as well as the dealerships. They opine that for a person who happens to struggle to save enough to buy a two-wheeler to shell out additional Rs 9000 to purchase the two-wheeler owing two wheeler insurance hike is a tall order.
However, it is too early to predict or detect the impact of these two directives on the industry. There are reports that the Society of Indian Automobile Manufacturers (SIAM) is attempting to put forward their worries and suggestions to the concerned authorities. But, all said and done, you can be assured that there has to be a major revamp both in the two-wheeler manufacturing and dealers side as well as the insurance companies side to implement this directive. There and for some rethinking is what it looks like. But, with a number of ministries that has to be approached, including the latest NitiAayog, it might take some time.
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