Insurers make up add-ons to entice customers into paying more for car insurance

However, while the jury is still out on whether this pay-as-you-like-kind of model is working out for insurers, it has added to the mental load of owning a vehicle for customers.

“The own-damage (OD) car insurance market is actually bleeding due to deep discounting. Insurers give 80% discounts (on basic premiums) and charge you in the name of add-ons, which does not make sense for consumers,” said Tejinder Pal Singh, vice president-motor insurance at Prudent Insurance Brokers.

Till about four to five years ago, insurers used to offer up to 50-60% discounts on basic motor insurance premiums, that too, only to customers with a very good profile or customers clients with multiple vehicles.

But today, according to Singh, if there is no claim against a policy, a customer can easily get an 80% discount even on online portals. In fact, today discounts up to 70-80% for retail customers are normal whereas in some commercial vehicle (CV) segments such as school buses, policies are being issued at upto 95-99% discounts. This has resulted in an average 20 to 30% fall in premiums for basic motor-OD plans across segments.

“The case three to four years ago was that motor insurance products from all companies were mostly similar, with price being the only only probable differentiator. Now, things are going the health insurance way, and products are becoming different, with some products being better than others,” said Amit Chhabra, chief business officer-general insurance at Policybazaar.

The languishing market

To be sure, general insurers offer mainly two kinds of motor insurance: Own-damage (OD) and third-party (TP).

While OD is essential for covering damages to your own vehicle, the mandatory TP covers accidental damage to someone else’s property or injury to another person.

In 2024-25 year-to date (YTD), motor insurance premiums have reached ₹89,406 crore, accounting for over 50% of non-life insurance premiums, excluding health. The on-year growth for the 10-month period ended January was 8%, compared to 13.6% in the year-ago period, showed a 20 March report by dredit rating agency CareEdge.

Motor-OD has grown 8.2% in the period against18.3% a year ago, whereas motor-TP has grown 7.9% against 10.6%.

Tepid “passenger vehicle domestic sales have resulted in lukewarm motor-OD growth, while flat TP tariffs continue to slow the growth of motor TP,” the report said.

Earlier this month, Mint reported that general insurers issuing moto-TP are grappling with rising underwriting costs as inflation and a near three-year pause on rate hikes eat into their business.

The Insurance Regulatory and Development Authority of India, or Irdai, typically revises the premium rates for third-party vehicle insurance policies every 1-2 years under the Motor Vehicle Act. However, its last rate revision was in June 2022.

Pick as you like

Before the covid-19 pandemic, most general insurers offered plain vanilla motor-OD policies, which typically cover vehicles against damages caused in accidents, theft, natural disasters, and man-made calamities. The little differentiation meant uniform or similar pricing.

However, as competition grew, general insurers started looking at innovative pricing models to drive profitability. Several insurance companies now offer extremely competitive pricing and high discounts on their basic products and make up the ticket size through add-ons and value-added features.

The most common of these add-ons is the “pay as you drive” feature, which entails paying premiums based on driving volume and vehicle usage instead of a flat rate. For example, a person driving the car for 15,000 kilometres a year will need to pay a much higher premium than someone who only drives for about 3,000 km.

“Such products tend to be 1/3rd or 1/4th the price of a regular product, and then policyholders have the option of topping up those products,” Chhabra said, adding that the industry is also seeing products created around metrics such as the quality of driving and driving behaviour, among other things.

Add-ons or features also include “preferred garage” plans, wherein policyholders get discounts on premiums for going to specific garages that insurers have tied up with. Several insurers now also offer different payment metrics, with the option of paying premiums monthly or semi-annually rather than just annually.

Some other features being offered include “zero depreciation cover” that ensures full claim settlement without factoring in depreciation, “roadside assistance” for emergency help during breakdowns, “engine protection cover” for safeguards against engine damage from waterlogging or oil leaks, “towing charges cover” to reimburse costs for towing the vehicle after accidents, and “consumable cover” for essential expenses like oils, nuts, and bolts during repairs.

“To offer greater value to customers and enhance flexibility, we have introduced innovative add-on covers such as ‘pay as you go’, ‘named driver’, and ‘eco assure’. These solutions cater to modern mobility patterns, where customers may not use their vehicles every day, allowing them to pay based on actual usage,” said Subhasish Mazumder, head-motor distribution, Bajaj Allianz General Insurance.

“By providing such value-added options alongside standard policies, we aim to offer more tailored coverage while ensuring a sustainable pricing approach,” he said, adding that expertise and data-driven insights are helping insurers design products that align with evolving customer needs, beyond just traditional insurance policies.

More options, more confusion

Though breaking up services into add-ons or value-added features has cut basic premiums, customers are paying even more than before.

For one-year-old petrol vehicles, motor-OD premiums for basic products have shrunk by 6-16% across different passenger vehicles compared with 2022, as per data from the insurance aggregator platform Policybazaar.

“Motor-OD rates have largely stabilized compared to three to four years ago. While some segments have seen slight reductions due to market competition, particularly in areas where motor-TP loss ratios are favourable, rising repair costs and inflation may drive rates higher soon,” said Shashi Kant Dahuja, executive director and chief underwriting officer, Shriram General Insurance, adding that even so there is still room for premium reductions.

Others are not convinced that the pricing variance is necessarily good for customers. Further, with cheaper basic plans now excluding several services, the final products are more convoluted, with policyholders left guessing as to which add-on they actually require.

“The problem is that most insurers operate the motor-OD business on a portfolio basis, driven by analytics. Because they manage it as a portfolio, the pricing changes frequently—even monthly or quarterly—basis geography, vehicle, customer profile, and the internal portfolio position. Thus, the pricing can be vastly different from insurer to insurer,” said R. Balasundaram, general secretary at the Insurance Brokers Association of India (IBAI).

Typically, insurers bundle these add-on covers under different packages such as gold or silver, which are sold with the basic motor-OD cover. Herein, depending on the basic policy and add-ons, pricing could vary even for similar add-ons being offered by different insurers, Balasundaram said, adding that overall premiums for customers could wary between 15-18% for policies offered by different insurers.

Prudent Insurance Brokers’ Singh also pointed out that there are several add-ons for which consumers have to pay extra but which may not be as relevant. These include add-ons such as “consumer expenses cover” where you have to pay separately for nuts and bolts expenses while say replacing a bumper, or certain engine covers that only protect against water damage, or battery covers that address only short circuit or overheating related damage.

“This creates a lot of confusion, especially for retail buyers who do not understand the nuances or specifications of add-ons.”

Balasundaram said while these innovations and coverage variants are good talking points, uptick for such features is muted unless they offer substantial benefits to customers.

“For customers, the motor-TP portion remains the same, so unless the discount or deduction on motor-OD is substantial, few customers will choose to opt for these rather than a full-blown cover without limitations on distance or usage. So, they are still not very popular,” he said.

This is possibly also because a lot of add-ons depend on the vehicle’s age and build. They may not make sense for older vehicles, where insurers may be reluctant to provide add-ons, or for electric vehicles, where many insurers don’t have the expertise yet, he added.