How automotive insurance should actually work
India is a strange, fascinating country. We take concepts that work in other cultures and turn them on their head – automotive insurance is one of them.
How automotive insurance works in a developed car market is as follows: you have an insurance profile, the same way the credit unions have your credit history. Your premium is set according to multiple factors. If you’re a mother of two buying a small grey hatchback, your insurance premium will be low. If you’re a 20 year old male buying a scarlet sports car and have a history of participation in racing… well, your insurance premium might work out to be more than all the other costs of your car combined! This is because if you get into a crash, the insurance of the person who is at fault makes the payout. That’s the whole point of insurance, isn’t it? So that you don’t have to pay for someone else’s mistake.
In India, though, insurance premiums are determined by the government, in the third-party policies. “What are third party policies,” you ask? Well, it means that if you crash into someone else, your insurance policy covers the other person’s damage. Only, if he wants to collect, he’ll have to go to court with evidence, get a ruling that you’re at fault, and then present that ruling to your insurance provider. If you have any knowledge of the Indian judiciary system, you’ll know that it will be decades before you get that ruling – by that time both of the parties involved would be three car purchases away from the cars that got into the crash. Oh, and since the cars involved are evidence in the case, you will not get a no objection certificate for a transfer to another Regional Transport Office (RTO), and neither will you be able to transfer them to someone else’s name until the case is resolved and that message gets to the RTO.
So what we do is, effectively, insure ourselves and our own cars. As a VW owner, insurance companies hate me. They lose money on me. So I pay a really high insurance premium for my Polo because I get clubbed in with the other VW owners who will make claims for every small thing and get big bills. This behaviour isn’t different from any other owner, but the repair bills for Suzukis and Hyundais and Hondas are a heck of a lot smaller, so insurance companies don’t lose much on them, or run a profit.
I once had the opportunity to meet a relatively high up official in a very respected automotive insurance company. I asked him this very question about why auto insurance is arseways in India. His response was “It has always been this way here, and it will be very difficult to change it.”
And thus, life – and insurance claims – go on.