IRDAI proposes changes in vehicle depreciation calculation

Insurance Regulatory and Development Authority of India (IRDAI) has proposed vehicle new age-based depreciation formula for computing sum insured for motor vehicles, including private cars and two-wheelers. A working panel on 'Product Structure for Motor Own Damage cover' set up by the regulator has recommended two options for calculating sum insured for private cars. For brand new private cars up to 3 years, the sum insured ‘shall represent the current day on-road price of the vehicle insured including invoice value, road tax and registration charges and value of all accessories fitted thereon by the manufacturer’, the exposure draft based on the recommendations of the working panel said.

For vehicles older than three years, depreciation would gradually increase from 40% to 60% up to 7 years. Beyond seven years, the sum insured could be negotiated with the insurer. Currently, insurers follow a complex process for arriving at the value of the car. The draft said the depreciation and sum insured calculation has been made simple.

According to the second option, the sum insured (refers to the percentage of vehicle's current manufacturer listed price) would decrease from 95% for up to 6 months to 40% for up to 7 years. In this case also, sum insured or depreciation rate is negotiable after 7 year. The regulator has also suggested age-based depreciation policy for two-wheelers. For commercial vehicles, the draft said the sum insured should represent the current day invoice value plus cost of body building, if any and all accessories fitted thereon by the manufacturer adjusted for depreciation at the rate of 10% per year or part thereof subject to maximum of 75%. It said for total loss and theft, the amount payable should be sum insured.