vehicular insurance

There are four mandatory documents you need to posses if you own or just drive a two/four wheeler in India. Failure to posses one or more invites a penalty.

The registration certificate – to prove the authenticity of the vehicle

The tax token – to show that the Government has not been cheated

A Driver’s License – a proof of the driver’s capability to drive

The mandatory insurance cover – the document which made me write this blog.

The insurance recommended by the Government is for the vehicle. The general procedure followed is that the premium is calculated according to the amount insured (generally the cost of the vehicle) and the customer is required to pay it to the insurance company on an annual basis. What is the vehicle insured for? In case of wear and tear, in case of an accident or some other misfortune when the vehicle is damaged, the customer may have relief from the bills.

Let’s just compare this with the normal insurance which is done for us. The amount insured is chosen, premium calculated and paid on a regular basis for a fixed time. In due course the customer gets some benefits and at the end of the policy term, the insured amount is paid back and in case of a misfortune, the amount is paid back immediately.

Now the real issue is that when the insurance for the vehicle is paid, except for claims made in case of wear and tear and provided the terms and conditions of the company are satisfied, the customer gets back a part of the amount we spend for the spare part which is replaced. Generally, the labour costs and cost of certain spares like plastics are not refunded. How many people actually claim? But every owner is expected to pay the insurance year after year until he owns that vehicle. With progress, the old vehicle is either exchanged for a new one or sold and the insurance premium paid till that time goes where – nowhere but the insurance company.

When nobody except the insurance company is actually benefited from the so called insurance cover for the vehicle what is the logic behind paying it? Why has it been made mandatory to posses an insurance cover? Or if there is a legitimate reason to justify the amount spent by the people in the name of insurance, what is the reason?

Government statistics show that as on 31st march 2004, 72718000 registered vehicles are there in India. Let’s assume that at least 1/10th of them are under insurance say at an average cost of Rs.1000. The figure comes down to Rs.7,27,18,00,000. That’s a whooping 700 crores ! How much would have been the customers’ claim? I doubt if it would have been 1/100th or even 1/1000th. Now that’s just a rough calculation for the year 2004. The number of vehicles has increased by geometric proportions and now in 2008 the figure spent on insurance would have easily shot up proportionately.

At least, if all the vehicle owners were made to take a life insurance for themselves it would have served the common man better than this farce!


S Ramanathan said...

i dont kno much abt the economics and logics, but this is wat i make out of it. apologies if i am wrong somehwere

That is the very reason they work! if every one has to get back their money, how ll they make profits and with wat money will they work? we pay insurance for 500 and 1000 bucks, but we get a lump sum of 20,000 and more when we claim the insurance. where will they get the money to pay for the claims if they have to pay back all their policy holders? this is the concept, everyone pays, every one has the security. not every person will face a crisis, it just cant happen, very few do, and they can claim and get their money. customer happy, company happy.

insurance companies are here to give us safety. If something happens to our vehicle, and it is not our mistake, then, the insurance company will pay for the vehicle. It is not that we HAVE to get the money we have paid, we pay for the security we get against accidents and thefts. we pay for a guard for security, now, if nothing happened during a month, no theft or accident happened, can we say we wasted the money on the guard that month?

and, we pay peanuts for vehicle insurance when compared to other life insurance policies. and why govt forces us is so that all of us have security, and vehicle policies are cheap and everyone can afford it.

suren said...

well...everybody does business to make profit n thats not an issue. the insurance companies do give back a considerable amount but no company pays from its pocket. they pay only a fraction of what profit they make while the capital with which they make money is our hard earned money.
you pay your n won't u expect something in return ? wat do we get from this ? is security is the only thing we need ? true we pay peanuts for vehicles but the life insurance policies pay u back n here too security is the basic thing but of a different nature

S Ramanathan said...

well...dunno, i guess they provide only security and tats why it is so cheap.. :)