• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Pratap Ravindran

PUNE, May 31

THE outgoing Chairman of the Insurance Regulatory and Development Authority of India, Mr N. Rangachary, has set the cat among the pigeons with his recent announcement that the IRDA is planning to set up a rating agency to evaluate the safety features of cars with the objective of helping general insurance companies determine tariffs while insuring different models.

The IRDA head, who had recently visited the US to study the system, has added that the facility will be established in Tamil Nadu as the State Government has offered to give 50 acres of land for it.

The automobile industry in India has, so far, been selling its products on the basis of extravagant claims relating to safety and other attributes unsupported by independent, third-party authentication, celebrity endorsements and alleged ratings by the media which gets a significant amount of advertising support from it. It has got away with all this because the Indian market is a relatively uninformed one, especially with regard to vehicular safety.

Assuming that the IRDA which, by its own admission, has studied the practices followed by the American automobile insurers, will adopt its significant components during the watch of Mr C.S. Rao who is billed to succeed Mr Rangachary, the buying and selling of cars in the country will change dramatically.

As insurance tariffs and, by extension, cost of purchase and ownership, of automobiles will be linked directly to their safety ratings, the latter will become an important consideration for most buyers. They will inevitably shop for ways of keeping insurance premiums low.

One option for doing this will involve going the extra mile in selecting the type of car that they buy.

Sports cars, by way of example, have traditionally been associated with high insurance tariffs as statistics put together in various parts of the world have shown that they tend to become involved not only in a greater number of collisions but also accidents of great severity. Luxury cars and SUVs are also usually associated with higher insurance costs as they are expensive to maintain or replace. And then again, they are more likely to be stolen.

There are certain vehicular features that tend to kick up insurance premiums: a convertible top, sunroof, moonroof, t-top, four-wheel drive, high performance and turbo engines, and snazzy audio systems.

Driven by insurance premium considerations, most buyers will, in all likelihood, drift towards vehicles with lots of safety features.

Insurance companies in the US offer a substantial reduction in premiums for vehicles equipped with safety features like driver side air bag, passenger side air bag, side impact air bags, automatic seatbelts, ABS brakes, traction control and fog lamps.

Insurance companies tend to charge less for insurance on these vehicles not because of any concern about your well-being but because safety features have a proven track record of scaling down the severity of collisions, thereby making the vehicle less of a potential liability for them.

Larger vehicles are included in this as well, as bigger cars provide more protection for passengers in the event of an accident.

People who clock fewer kilometres on their dashboard will be able to wangle discounts. Insurance companies look on such people kindly because the fact that they are on the road less than other people means that they represent a lower risk. Driving pools may become popular. Buyers will also be able to select from a wider variety of vehicular insurance products: Collision/comprehensive, medical, liability, uninsured motorist, underinsured motorist, umbrella, gap insurance and so on.

That's the good news.

The bad news for most Indians is that sloppy driving will become expensive. People will just have to learn how to drive responsibly and follow the rules of the road — unless they don't mind paying out hefty rates to insurance companies.

The incentive to keep off booze or drugs, even prescriptions drugs or over-the-counter remedies with warnings of drowsiness as a side-effect, while behind the wheel will also become stronger.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Forex reserves jump $1.5 b, top $80-b mark

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line