IB mulls zero depreciation motor insurance product
KATHMANDU, April 28: The Insurance Board is mulling over directing insurance companies to introduce motor insurance policies with zero depreciation coverage.
If such a product is launched people who have insured vehicles can claim back every penny that has gone into repair work following an accident, meaning insurance companies cannot deduct any amount in the name of depreciation.
Currently, insurance companies are allowed to deduct certain amount from the total claim amount depending on types of parts replaced during repair work.
For instance, an amount of up to 50 percent can be deducted in case parts are made of rubber, plastic and nylon. Similarly, spare parts made of fiber glass are subject to 30 percent deduction. On other parts, other than those made of glass, deduction of anywhere from five percent to 50 percent can be made depending on the age of the part.
It is the same on repair work. For instance, insurance companies can deduct five percent of the amount incurred in repair if the vehicle is less than six months old. This amount can go up to 50 percent if the vehicle is over four years old. This means if the total repair cost amounts to Rs 100,000, insurance companies are entitled to deduct up to Rs 50,000 as depreciation.
“Because of these provisions, a person who has damaged a vehicle in an accident cannot get back full coverage amount despite paying premium amounts on time,” Binod Aryal, executive director of the Insurance Board, told Republica. “To end this predicament, we are planning to instruct insurers to introduce zero depreciation motor insurance product which offers full claim coverage on the value of parts replaced.”
If the product is launched, customers can also claim back money spent on items like engine oil, Aryal said. “This is to ensure people do not have to spend any extra money upon purchase of this particular motor insurance product,” he added.
This privilege, however, will not come cheap as people will also have to be ready to pay higher premium amount if they decide to purchase the product.
“It will definitely be expensive than the regular motor insurance product available in the market but we will try to fix the price in a way it does not create a hole in clients´ pockets,” Aryal said.
However, various insurance companies told Republica that Nepali market may not respond well to such a product as premium rates are likely to be very high.