The demand for Two-wheelers in India is so huge that you have a number of models of two-wheelers in the market now. Two-wheeler, which was previously categorized simply as mopeds, scooters, and motorcycles, is no more than simple. It is because each of them 15 major two-wheeler manufacturers have a product line that stretches to at least a minimum of 3 models and a maximum of 10-13 models each different in their body type, engine capacity and functionality. In India, the market penetration of two-wheelers is so high that about 57 of every 100 who has the capacity to maintain two-wheeler has one.The type of two-wheeler would be very vital to determine the insurance premium and make bike insurance claims in case of an accident.
Before these bikes ply on the road, the cost of third-party insurance for a year is charged upfront. This is added to the ex-showroom price. This is mandatory as per the Motor vehicles Act. This is supposed to provide insurance cover in case of loss or damage to or by the vehicle. The bike can hit the road, and bike insurance claims can be made only when this insurance is availed.
Calculation of the Two wheeler insurance premium
The insurance premium, as well as the Bike Insurance, Claims that you would make in case of an accident actually depends on a number of factors that you should take into consideration when you purchase the insurance policy. It includes:
1 The type of cover
There are two types of cover
The comprehensive cover this covers any damage or injury to yourself as well as the bike. This policy also includes third party liability cover.
The third-party liability cover- unlike the comprehensive cover, it offers limited cover that would serve as compensation to any person as well as property that is damaged by your two-wheeler.
While you can opt for comprehensive policy by paying a higher premium, it is mandatory to take up Third party liability cover. The third-party liability cover hs to be taken for a year and renewed thereafter every year for it to be valid to make Bike Insurance Claims. This third party cover premium is calculated and added upfront to the ex-showroom price when you buy a two-wheeler.
2 Types of two-wheelers- the make and the model as well as engine capacity.
The types of two-wheelers include
Scooters–You can come across scooters that have an engine capacity as low as 50cc. The scooters are fully automatic easy to use vehicles that are quite suitable for women. Some popular models include Vespa Piaggio, Scooty, Jupiter and Vego from TVS, Activa and DIO from Honda, Access from Suzuki, etc
Standard bikes–These bikes can be considered as all-purpose bikes.They are neutral in ergonomics and are designed with the optimal build and fuel-efficient engine. The popular models include Bullet 500 from Royal Enfield, Centuro from Mahindra, Glamor, Splendor, and Dawn from Hero, Unicorn, CBR150R, CB Shine and CD110 from Honda, Hayate and Gixxer from Suzuki.
Sports bikes– These bikes are designed with powerful engines and aerodynamic fairings that would reduce air drag. Though these sports bikes were previously used only by racers, it is now being sold to inexperienced riders as well. Some important brands include KTM, Kawasaki, Yamaha, Honda, Suzuki, etc.
Naked- This refers to bikes that come without fairing to cover the engine and the frame as well as the handlebars. They also include a range of custom bikes.
It goes without saying that the premium for insurance would be high for premium bikes. The premium is high for two-wheelers with high engine capacity.
3 City of registration
The insurance premiums also tend to vary depending on whether it is a Metropolitan city, a tier 1 city or tier 2 city, etc. The difference in the calculation of the premium arises as the calculation is done based on the number of vehicles that ply in the city, the number of people in the net, the risk rate, etc.
4 Type of Cover
The third party coverage only offers limited coverage. Bike Insurance claims in case of an accident would not cover injury and damage to yourself and your vehicle. Therefore, when you opt for a comprehensive policy that covers loss of vehicle as well as damage to or by your bike, the cost of premium would be high. Additional covers such as collision cover, fire cover and cover for pillion rider, etc too can be availed over and above the comprehensive cover at extra costs
5 Other factors
Apart from the above factors, the other factor you need to focus on while purchasing or renewing your two-wheeler insurance is the Insured Declared value. It is important because it would have a crucial role to play in case of Bike Insurance Claims.
What is Insured Declared Value or IDV?
The IDV of your vehicle is nothing but the effective value of the vehicle when you make a Bike insurance Claim when the vehicle is completely damaged or lost. The IDV is calculated by adjusting the market value of the two-wheeler against the depreciation. The depreciation is generally based on a specific table of depreciation. The premiums would fall as the bike ages as the depreciation increases. You need to be conscious about bike insurance claims made after the bike ages.
Calculation of cost of two-wheelers till August 31st, 2018
The cost of the two-wheelerscould be classified into three components
The ex-factory price– This is the price at which the manufacturers are ready to sell the two-wheeler to the dealer. This differs from one state to another and depends on various factors. However, this price is not a public one as it is an agreement that happens solely between the dealer and the manufacturer.
The ex-showroom price– this involves a cost that is a certain percentage over the ex-factory price. Then it involves the addition of a number of local taxes that differ from state to state. This was then replaced by the GST which is now a fixed rate irrespective of the state. The ex-showroom price also includes transportation costs for the dealers too.
The on Road price
On Road price is the invoice value of the car that includes State registration taxes, road tax payment for a lifetime, the mandatory third-party coverage premium for a year, handling charges. It may include optional costs such as the cost of accessories as well as additional coverage costs. Therefore, on the road price is the price at which you can drive away the vehicle you just bought.
The change in scenario since September 1st, 2018
There were two directives from the IRDAI one on the 1st of September as well as the other on the 20th of September that are likely to influence the on road price of the two-wheeler in a big way.
The directive on 1st September
The IRDAI made it mandatory to collect the premium for third party cover which was collected for a year upfront to three to five years upfront.This was done as a measure to reduce the number of vehicles that ply on the road without insurance and also to increase the number of vehicles in the net. This does mean that the on-road price would go up significantly leading to Bike Insurance Claims that are beneficial to the injured.
The directive on 20th September
This directive was circulated in the wake of the directive by the Chennai high court that insisted he CPA which was earlier 1-2 lakhs be increased to at least Rs.15 lakhs considering the increase in the health care costs over the years. It also hinted at the insured opting for extra cover by paying an incremental premium for the same.This directive by the IRDAi which directed that this is implemented immediately has again added to the on road price of the two-wheelers that are about to be bought after September 1st, 2018.
The impact on prices
Though the two directives hint at an increase in prices of two-wheelers, a closer look would show that the price rise is sharp in the case of the entry-level two-wheelers than the slightly higher vehicles or premium vehicles. For example, if you are planning to buy Bajaj CT 100 priced around Rs. 35,000 as the ex-showroom price,the effective price after the addition of the changes made in the insurance payout would result in an increase in the price of the two-wheeler by Rs. 8,500 which means a steep increase which amounts to 25% of the ex-showroom price. This would be a huge price change that might even force one to change or postpone the buying decision by the class of people who wish to purchase the entry level vehicles.
But in the case of vehicles that are priced between Rs.35,000-43,00, it is again an increase by only Rs. 9000. It is almost the same for those priced around RS. 55,000 as well as Rs.58,000 too. This could have a huge impact on buying decisions and also the number of people who buy two-wheelers. Though, it is too early to predict the extent of impact these directives would have on the industry. But, the SIAM is attempting to put forward its worries and suggestions to the concerned authorities. But, since a lot of ministries are involved, it would definitely take a lot off time for something positive to materialize. For now, it is time to get ready to shell out extra money to buy two-wheelers.