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Impact of Covid-19 on Motor Insurance in India

Team AckoSep 7, 2021

Most Indians buy vehicles by physically visiting the showroom or a dealer. The same goes for motor insurance. As per an IIB report on private car insurance policies, 38% are sold by agents, 37% by corporate tie-ups and brokers, and a mere 7% are sold through dealer tie-ups and direct-to-customer models.

Impact of Covid-19 on Motor Insurance in India

In motor insurance, some after-sale services need the physical presence of the insurer. For example, claim-related damage assessment. This was one of the major challenges posed by the COVID-19 pandemic and the consequent lockdown. Businesses were mandatorily shut down, and the motor insurance sales dropped as people were unable to physically visit a car dealer or an car insurance company. Neither could an insurer provide timely service due to restrictions and social distancing.

Consequences of COVID-19 pandemic on motor insurance

The nationwide lockdown forced people to remain indoors and take measures to avoid the infection by minimising physical contact with the outside world. Since all types of non-essential businesses were closed, they could not buy vehicles by visiting a showroom or a dealer. As per a research report issued by the Federation of Automobile Dealers Associations (FADA), there was a 31% drop in motor vehicle sales in FY20-21 as compared to the previous financial year. 

Consequently, the number of motor insurance policies sold also took a plunge. IRDAI reported growth of a mere 1% in motor insurance for June 2020 as compared to June 2019. Bifurcating the report further, there was 14.04% growth in FY19-20 for motor own damage premium, which dropped to 13.11% in FY20-21. Whereas the third-party liability component dropped from 22.46% growth to 21% in FY20-21. The policy renewal was a major contribution to growth rather than new motor insurance policies.

GDP Contribution in Motor Insurance

The above graph shows a decline in the Gross Direct Premium (GDP) for motor insurance segments (Own Damage and Third-party Liability) from FY 2019-20 to FY 2020-21.

The motor insurance industry in India

The Indian motor insurance industry has been thriving for decades in the country. But, for quite a long time, it has been reluctant to incorporate technological innovations. Traditional insurers have a defined route for selling products and one major channel is insurance agents. These agents highly rely on word of mouth for sales. Since isolation and lockdown put an iron-clad restriction on travels and meeting potential clients, selling motor insurance offline posed a lot of challenges for them.

On the other hand, the online presence of new-age insurers (such as ACKO) proved to be a ray of hope for the deep-diving sales graphs. Online motor insurance does not require physical presence. One can visit the insurer's website and buy the desired motor insurance plan. ACKO has added to customer convenience by offering features like no physical paperwork for buying/renewing insurance plans or even for raising a claim. This can be done from the convenience of your home. Damage assessment can be done through images and videos of the vehicle that the customer uploads. Here are a few other convenience factors that ACKO offers.

Instant claims

You can raise a claim for damages through the ACKO app and the team will contact you for understanding more details. If your vehicle has minor damages, then ACKO will do its best to settle the claim within a few hours. This way, you don't have to go through the entire car insurance claim process and you can expect the claim settlement amount sooner.

A D2C model

ACKO does not have insurance agents for selling the products. You can visit our website and buy motor insurance directly. This removes the cost of agent commissions and you get a cheaper policy without compromising on the coverage or services. Another advantage is you buy insurance as per your requirements as opposed to what an agent wants you to buy.

Free pick-up and drop

We offer free pick-up and drop for damaged vehicles in select cities. Meaning, you will not only avoid the hassle of getting the car towed to a workshop but also get it repaired and dropped at your doorstep within three days.

Also, read: Contactless car insurance

Impact of social distancing on private and commercial vehicles sales

Considering the state of Indian public transport facilities and overcrowding, those who can avoid these will most likely invest in a private vehicle. For example, a two-wheeler or a low-priced four-wheeler. Cars offer a more isolated environment while a two-wheeler offers easy manoeuvring and faster travel time. The numbers also correspond to this observation. 

As per the FADA’s report, there was an 11.56% drop in private vehicle sales while a significant 34.58% drop for commercial vehicles during the pandemic. This shift in sales pattern can have a long-lasting effect on the sale and can linger for the next few years. 

Motor insurance sales are likely to increase in the near future due to more people buying private vehicles instead of opting for public transport. The sales will be fueled by the positive inclination towards digital insurance as well.

Wrapping up

With more people getting vaccinated each day and decreasing COVID-19 cases, the government has eased certain restrictions related to travel. Consequently, this will have a positive effect on motor insurance. Thus, there can be expected growth in vehicle sales and registration in the upcoming years. 

Frequently asked questions

Here are some questions about the impact of COVID-19 on motor insurance.

Will car insurance premiums increase post-pandemic?

Premium rates for Third-party components are revised by IRDAI on an annual basis and there may be an increase in the coming years. The cost of Own damage is determined by each insurance company and may not change significantly.

Which benefits do online motor insurers offer?

Benefits like low-priced policies, instant renewals, 24x7 availability for purchase, the convenience of payment, etc. are some common benefits that online motor insurance companies offer.

Are people likely to prefer private vehicles after the pandemic?

Yes, people may buy more private vehicles to avoid crowded public transport. Isolated travel will allow people to avoid the COVID-19 infection.

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