Insurers vs manufacturers: Deregulation of the Insurance sector

tsk1979 · 29th September 2005, 12:28

Full Article:
http://economictimes.indiatimes.com/...73,curpg-1.cms

What it means?

When the insurance sector is fully deregulated, the cost of insurance will become dependent not only on the engine size and price, but also on the cost of spares. So 2 cars with same cost may have different insurance costs because of difference in cost of spares.

Insurance companies are also saying manufacturers are creating an artificial shortage of parts due to selling exclusively to authorized service centers. In western countries, for example UK, the service centers can source the parts from anywhere, as long as the part meets a certain specification rating. The rating is by Thatcham (The Motor Insurance Repair Research Centre) — a non-profit organisation established in 1969 by British Insurers to carry out research targeted at containing or reducing the cost of motor insurance claims, while maintaining safety and quality standards. In india key parts like the body shell, engine, ECM and gear box together exceed the cost of the car even in case of M800, the car with the cheapest spares. At the highest end are European and American cars, while Japanese cars are relatively cheaper. So, Japanese cars have a higher resale value. Insurers say that apart from the exclusive arrangements, there are other reasons why repairs are expensive. First is non-availability of ‘child’ parts. This means that if there is a damage to a small component of the spare, the entire assembly needs to be replaced. “In a couple of high-end European cars, if there is any damage to the engine, the entire engine needs to be replaced,” says an insurer. Another factor is the expertise and equipment available with a dealer.

Case in point. S-Class = 70lakh, S-class front seats= 15lakh. An accident which leads to seats being ripped of will cost atleast 15lakhs for that car! So when the deregulation comes expect to pay more for cars with higher spare part costs.

Another manufacturer cheating customers is skoda. The Alternator costs 43000rs. However if you source the alternator from Bosch from a non authorized dealer, ie from open market, it costs 18000rs, but the dealers wont fit customer sourced parts due to obvious reasons. Full story regarding this alternator is in Oct Autocar India.

Even honda is not exempt. The rear spare wheel cover cost is in thousands, though the cost of production cannot be more than 1-2 thousand, no matter how high quality of plastic is used.

“World-wide, one of the primary factors in rating is the cost of repairs. In the US and UK, there are institutes where, whenever a new model is introduced, crash tests are stimulated and the subsequent cost of repairs becomes the basic component for price,” says Kamesh Goyal, MD, Bajaj Allianz General Insurance.

Deregulation will come sometime next year, and it may lead to skyrocketing of insurance costs for manufacturers which have the policy of making spare parts the cash cow for dealers.

AvinashKeezh · 29th September 2005, 14:32

nice write up tsk,
when the insurance sector get deregulated, there is an obvious chance that the delears alone won't be the people having access to the spares. and if that becomes, we have a pretty open market and more open to fake stuff!! coz we won't know if the spares that we get from the shop are spurious or original (atleast we know that the dealers are not thrusting upon us the substandard ones)..
Could we have some more views on this, coz it is rather confusing.. to think of what might happen once the insurance sec is deregulated.
ak

tsk1979 · 29th September 2005, 14:45

If we follow the UK model(which is unlikely), there will be a regulatory non-profit association which will certify certain dealers and spares. As for dealers giving genuine parts, there are cases when dealers give parts from accidental vehicles. for example a car may have a damaged alternator, but the alternator belt may be okay. Many times dealers make a quick buck with such, esp for under warranty repairs.

MrBoombastic · 6th January 2006, 17:58

Really nice post, Tanveer Bhai... This will save so many people reading this post from choosing the wrong car to buy. Keep up the good work!

goldie_malhotra · 6th January 2006, 18:17

hey tanveer,
really nice article - dunno why many people chose to ignore it ...

on the same lines, i have also noticed another trend with regards to insurance which is widely followed in US, Europe etc. - that is the insurance premium depends on lot of other factors like

1. Age of person driving - younger drivers tend to be more rash, hence higher premium

2. Marital status - people with spouse and kids also tend to be more careful

3. Accident history - the premium may actually double or triple if you've had a major accident, while here, if you claim, all you lose is a no-claim bonus

4. Type of car - a sports car would also attract much higher premium than a family station-wagon, even though both may cost the same

5. Age of the car - in some cases, one has to pay higher premium for a lower cover amount because chances of accident/repair are higher

X. I am sure there are lots others - members who have owned a car abroad can probably help me out here

If the Indian insurance companies chose to calculate premium based on above factors, then we would be in for a major shock

RedOne · 6th January 2006, 18:40

Some other factors deciding your premium:

Colour of car; Red means higher premium
Traffic (moving) violations like speeding, DUI etc. increase premium
Good Driver discounts
Multiple cars gives discounts on premium
Smokers attract more premium (no clue why)

I didn't lose a single point in the California driving test, and the DMV guy wrote "Good Driver" on my temp license which gave me an additonal discount.

Gears,
Red-One.

lamborghini · 6th January 2006, 18:53

I always pitied the UK car buyers for their insurance system but now looks like the same is going to happen here. Makes sense if you look at it but it could spell bad news for manufacturers such as Skoda and Honda (replacing something as simple as a vent on an OHAccord cost 16K).

amit · 6th January 2006, 20:50

Quote:

Accident history - the premium may actually double or triple if you've had a major accident, while here, if you claim, all you lose is a no-claim bonus

Quote:

If the Indian insurance companies chose to calculate premium based on above factors, then we would be in for a major shock

Just hope folks that the western way of insurance doesn't happen in India. It's a bloody rip off. Insurance companies and banks are legal mafia's here. Anything and everything increases your insurance. I have seen a lot of people backing off from the purchase of a car because of insurance. Also, pre-owned cars are lower on insurance compared to new ones. This is something that I have seen with my own eyes. Shocking but it's a fact.

I was working in a GM dealership. A guy comes in with a walking stick to buy a new car. He says the only car he can buy is the Pontiac Wave (Chevy Aveo). The guy had a VW Jetta that was totalled in an accident which also put him in an hospital for two months. He also had about 5 speeding tickets in the last one year. The limp and walking stick were soveneirs from the accident. The guy compromises on the car and his monthly payments come to about CAD$375. Knowing his insurance would zoom up, he calls his company right from the dealership and gets the shock of his life which also shocks the entire dealership. The company worked out his insurance at ...get ready for this guys......CAD $18,000 a year!

Thats $1500 a month! Remember, he was paying $375 a month on the car and $1500 a month on insurance. Ultimately, he decided not to buy the car. The poor salesguy didn't even try to convince him or influence him to buy the car after he heard the insurance rate.

Beemer · 6th January 2006, 23:56

Thanx for the article tsk1979 .. All we can do is hope and pray that this kinda way does not take place in india ... But ,if it does than hard time for the car buyers ,manufacturers ,all the banks who deal in car loans ...

I feel , it would 've a great effect on the car sales and a nice way to reduce the increasing mad traffic on the roads ...

GTO · 9th January 2006, 18:20

I am sure that all of us are happy with the current situation, but is it realistic? If the spare parts of one car cost more than another, why should it not attract a higher premium?

Its a question of fundamentals.

GTO

Rtech · 9th January 2006, 18:36

I'm all for the higher premium. But then the insurance compnies hsould fulfil their end of the deal as well. Case in point is the crap dished out by ICICI. I have to go into legal proceedings to get them to come around. Why the heck should I?

Another aspect is the 50% depreciation on plastic parts. There is absolutley no logical reason why this rule is in force. but it is, and the consumer has to live with it.

Further, if the pricing is going to be worked out individually, they must take into consideration the safety of each car as well. I mean it just would not be right that a person first pays a premium on the car so that he can get airbags, ESP, ABS, etc. then has to pay another premium because the insurance company feels its too expensive in the case of an accident. What they must conisder is the amount saved on hospital bills, third party liability and repairs due to the accidents ABS and esp PREVENT!

The problem is, this may work in other countries where the consumer actually has rights. Here in India, it's just going to be another case of the MNC bullying the consumer and milking more money from them. What's even worse is that the insurance company lobby must be so strong that they can easily get our Govt. to change the laws to suit them.

God help us all.

ajmat · 9th January 2006, 19:06

Quote:

Originally Posted by Rtech

I'm all for the higher premium. ....................
The problem is, this may work in other countries where the consumer actually has rights. Here in India, it's just going to be another case of the MNC bullying the consumer and milking more money from them. What's even worse is that the insurance company lobby must be so strong that they can easily get our Govt. to change the laws to suit them.

God help us all.

At present, no insurance company is making any money under the current scheme. However that does not mean that they treat customer's like in Rtech's cae appallingly. If they cannot make money they should either quit, stay out of the business or take the hit until new premiums methods come in

ajmat · 9th January 2006, 19:08

Quote:

Originally Posted by goldie_malhotra

X. I am sure there are lots others - members who have owned a car abroad can probably help me out here

:

Area where you live
Car modifications
Health factors

sbasak · 9th January 2006, 21:21

Not all systems in India are bad! Auto insurance premium is one of them.
In USA/UK, the insurance is a real pain!

Now imagine one thing. If those rules are implemented here, insurance premium will obviously go up (to some extent that depending on situation insurance premium can be more than the price of the car)

And after paying that, you'll still get the experience what Rtech suffered....
How about that?

Usually whenever we adopt something what is followed in Europe/America we usually get the bad effect of it rather than the good effect.

tsk1979 · 9th January 2006, 22:22

Once new cars start becoming common, insurance companies will have to follow new norms. A minor accident which costs 50K on old generation cars will set back the insurance by 3-4Lakh on modern ones. Deregulation is the mantra nowadays and this budget insurance sector may be deregulated. However the govt owned insurance companies may still follow old policies to a large extent and therefore to remain competitive the private players will have to buckle.
If insurance sector gets fully privatized we may see a disaster paralleled only by the privatization of railroad in UK

29th September 2005, 12:28	#1
tsk1979 Team-BHP Support Join Date: Feb 2005 Location: San Jose, CA Posts: 23,717 Thanked: 22,825 Times View My Garage	Insurers vs manufacturers: Deregulation of the Insurance sector Full Article: http://economictimes.indiatimes.com/...73,curpg-1.cms What it means? When the insurance sector is fully deregulated, the cost of insurance will become dependent not only on the engine size and price, but also on the cost of spares. So 2 cars with same cost may have different insurance costs because of difference in cost of spares. Insurance companies are also saying manufacturers are creating an artificial shortage of parts due to selling exclusively to authorized service centers. In western countries, for example UK, the service centers can source the parts from anywhere, as long as the part meets a certain specification rating. The rating is by Thatcham (The Motor Insurance Repair Research Centre) — a non-profit organisation established in 1969 by British Insurers to carry out research targeted at containing or reducing the cost of motor insurance claims, while maintaining safety and quality standards. In india key parts like the body shell, engine, ECM and gear box together exceed the cost of the car even in case of M800, the car with the cheapest spares. At the highest end are European and American cars, while Japanese cars are relatively cheaper. So, Japanese cars have a higher resale value. Insurers say that apart from the exclusive arrangements, there are other reasons why repairs are expensive. First is non-availability of ‘child’ parts. This means that if there is a damage to a small component of the spare, the entire assembly needs to be replaced. “In a couple of high-end European cars, if there is any damage to the engine, the entire engine needs to be replaced,” says an insurer. Another factor is the expertise and equipment available with a dealer. Case in point. S-Class = 70lakh, S-class front seats= 15lakh. An accident which leads to seats being ripped of will cost atleast 15lakhs for that car! So when the deregulation comes expect to pay more for cars with higher spare part costs. Another manufacturer cheating customers is skoda. The Alternator costs 43000rs. However if you source the alternator from Bosch from a non authorized dealer, ie from open market, it costs 18000rs, but the dealers wont fit customer sourced parts due to obvious reasons. Full story regarding this alternator is in Oct Autocar India. Even honda is not exempt. The rear spare wheel cover cost is in thousands, though the cost of production cannot be more than 1-2 thousand, no matter how high quality of plastic is used. “World-wide, one of the primary factors in rating is the cost of repairs. In the US and UK, there are institutes where, whenever a new model is introduced, crash tests are stimulated and the subsequent cost of repairs becomes the basic component for price,” says Kamesh Goyal, MD, Bajaj Allianz General Insurance. Deregulation will come sometime next year, and it may lead to skyrocketing of insurance costs for manufacturers which have the policy of making spare parts the cash cow for dealers.
	() Thanks

29th September 2005, 14:32	#2
AvinashKeezh BHPian Join Date: Aug 2005 Location: Bangalore Posts: 234 Thanked: 11 Times	nice write up tsk, when the insurance sector get deregulated, there is an obvious chance that the delears alone won't be the people having access to the spares. and if that becomes, we have a pretty open market and more open to fake stuff!! coz we won't know if the spares that we get from the shop are spurious or original (atleast we know that the dealers are not thrusting upon us the substandard ones).. Could we have some more views on this, coz it is rather confusing.. to think of what might happen once the insurance sec is deregulated. ak
	() Thanks

29th September 2005, 14:45	#3
tsk1979 Team-BHP Support Join Date: Feb 2005 Location: San Jose, CA Posts: 23,717 Thanked: 22,825 Times View My Garage	If we follow the UK model(which is unlikely), there will be a regulatory non-profit association which will certify certain dealers and spares. As for dealers giving genuine parts, there are cases when dealers give parts from accidental vehicles. for example a car may have a damaged alternator, but the alternator belt may be okay. Many times dealers make a quick buck with such, esp for under warranty repairs.
	() Thanks

6th January 2006, 17:58	#4
MrBoombastic BANNED Join Date: Oct 2005 Location: Chennai Posts: 253 Thanked: 6 Times	Really nice post, Tanveer Bhai... This will save so many people reading this post from choosing the wrong car to buy. Keep up the good work!
	() Thanks

6th January 2006, 18:17	#5
goldie_malhotra BHPian Join Date: Nov 2005 Location: New Delhi Posts: 757 Thanked: 12 Times	hey tanveer, really nice article - dunno why many people chose to ignore it ... on the same lines, i have also noticed another trend with regards to insurance which is widely followed in US, Europe etc. - that is the insurance premium depends on lot of other factors like 1. Age of person driving - younger drivers tend to be more rash, hence higher premium 2. Marital status - people with spouse and kids also tend to be more careful 3. Accident history - the premium may actually double or triple if you've had a major accident, while here, if you claim, all you lose is a no-claim bonus 4. Type of car - a sports car would also attract much higher premium than a family station-wagon, even though both may cost the same 5. Age of the car - in some cases, one has to pay higher premium for a lower cover amount because chances of accident/repair are higher X. I am sure there are lots others - members who have owned a car abroad can probably help me out here If the Indian insurance companies chose to calculate premium based on above factors, then we would be in for a major shock
	() Thanks

6th January 2006, 18:40	#6
RedOne BHPian Join Date: Sep 2004 Location: Bangalore Posts: 338 Thanked: 93 Times View My Garage	Some other factors deciding your premium: Colour of car; Red means higher premium Traffic (moving) violations like speeding, DUI etc. increase premium Good Driver discounts Multiple cars gives discounts on premium Smokers attract more premium (no clue why) I didn't lose a single point in the California driving test, and the DMV guy wrote "Good Driver" on my temp license which gave me an additonal discount. Gears, Red-One.
	() Thanks

6th January 2006, 18:53	#7
lamborghini Distinguished - BHPian Join Date: Apr 2004 Location: Mumbai Posts: 6,114 Thanked: 5,763 Times View My Garage	I always pitied the UK car buyers for their insurance system but now looks like the same is going to happen here. Makes sense if you look at it but it could spell bad news for manufacturers such as Skoda and Honda (replacing something as simple as a vent on an OHAccord cost 16K).
	() Thanks

6th January 2006, 23:56	#9
Beemer BHPian Join Date: Feb 2005 Location: delhi Posts: 384 Thanked: 4 Times View My Garage	Thanx for the article tsk1979 .. All we can do is hope and pray that this kinda way does not take place in india ... But ,if it does than hard time for the car buyers ,manufacturers ,all the banks who deal in car loans ... I feel , it would 've a great effect on the car sales and a nice way to reduce the increasing mad traffic on the roads ...
	() Thanks

9th January 2006, 18:20	#10
GTO Team-BHP Support Join Date: Feb 2004 Location: Bombay Posts: 70,546 Thanked: 300,788 Times View My Garage	I am sure that all of us are happy with the current situation, but is it realistic? If the spare parts of one car cost more than another, why should it not attract a higher premium? Its a question of fundamentals. GTO
	() Thanks

9th January 2006, 18:36	#11
Rtech Team-BHP Support Join Date: Apr 2004 Location: Bombay Posts: 5,770 Thanked: 359 Times View My Garage	I'm all for the higher premium. But then the insurance compnies hsould fulfil their end of the deal as well. Case in point is the crap dished out by ICICI. I have to go into legal proceedings to get them to come around. Why the heck should I? Another aspect is the 50% depreciation on plastic parts. There is absolutley no logical reason why this rule is in force. but it is, and the consumer has to live with it. Further, if the pricing is going to be worked out individually, they must take into consideration the safety of each car as well. I mean it just would not be right that a person first pays a premium on the car so that he can get airbags, ESP, ABS, etc. then has to pay another premium because the insurance company feels its too expensive in the case of an accident. What they must conisder is the amount saved on hospital bills, third party liability and repairs due to the accidents ABS and esp PREVENT! The problem is, this may work in other countries where the consumer actually has rights. Here in India, it's just going to be another case of the MNC bullying the consumer and milking more money from them. What's even worse is that the insurance company lobby must be so strong that they can easily get our Govt. to change the laws to suit them. God help us all.
	() Thanks

9th January 2006, 21:21	#14
sbasak BHPian Join Date: Nov 2005 Location: CCU-LTN Posts: 608 Thanked: 14 Times	Not all systems in India are bad! Auto insurance premium is one of them. In USA/UK, the insurance is a real pain! Now imagine one thing. If those rules are implemented here, insurance premium will obviously go up (to some extent that depending on situation insurance premium can be more than the price of the car) And after paying that, you'll still get the experience what Rtech suffered.... How about that? Usually whenever we adopt something what is followed in Europe/America we usually get the bad effect of it rather than the good effect.
	() Thanks

9th January 2006, 22:22	#15
tsk1979 Team-BHP Support Join Date: Feb 2005 Location: San Jose, CA Posts: 23,717 Thanked: 22,825 Times View My Garage	Once new cars start becoming common, insurance companies will have to follow new norms. A minor accident which costs 50K on old generation cars will set back the insurance by 3-4Lakh on modern ones. Deregulation is the mantra nowadays and this budget insurance sector may be deregulated. However the govt owned insurance companies may still follow old policies to a large extent and therefore to remain competitive the private players will have to buckle. If insurance sector gets fully privatized we may see a disaster paralleled only by the privatization of railroad in UK
	() Thanks