ROLLOVER VACCUME

Motor Insurance is the biggest component of the general insurance segment. The distribution channels which primarily source motor insurance are:

·      PoSP

·      Brokers

·      Agents

·      Dealers

There are 3 ways in which motor insurance happens:

·      New Vehicles

·      Rollover 

·      Renewal

Motor Insurance is a date driven business. Usually, the insurance is renewed by a client on or before the expiry of current insurance policy. This happens primarily because the Third-Party portion of any vehicle insurance policy is mandatory by law. 

As per the new Motor Vehicle Act 2019, the fine for the first offence of driving without insurance policy is Rs.2,000/- and/or imprisonment of up to 3 months. Earlier, this fine applicable was Rs.1,000/- and/or imprisonment of up to 3 months.

For the second time offence, if you continue to drive a vehicle without insurance policy then you will be liable to pay a fine of Rs.4,000 and/or imprisonment of up to 3 months.

Rollover insurance means that on the anniversary of vehicle policy, the customer chooses to shift the insurance from earlier company to new company for any reasons like claims experience, pricing of insurance, lack of support from current company or agent, etc etc.

April- May and some days of June 2020 was a lockdown in most parts of India. Hardly any vehicles were sold in this period.

When the vehicle is not sold, obviously there is no insurance renewal which will be due for renewal or rollover in exact same period in 2021.

Those distribution channels which are primarily doing only motor insurance need to tread a careful path in these 3 months. The 1st year rollover & renewal business is around 20% of the total motor business happening every year. The value of a vehicle is depreciated approximately 15-20% from the purchase price and insurance premiums for a 1-year-old vehicle are in the range of 2-3% of the vehicle value. 

Now, this is not going to happen this year. This is indirect effect of the Covid-19 pandemic on the earnings of the distribution community.

We always advise our PoSP to have a balanced portfolio which is comprising of Health Insurance, Term Insurance, Home Insurance & Vehicle Insurance.

This way PoSP can de-risk the business & earning flow and can focus on client servicing.

Author is Prabhat Vijh- Director & Principal Officer: iAND Insurance Broker Private Limited