Insurer bound by cover note

This week I would like to write about two problems that people may face in respect of their vehicle insurance and how to deal with them. While one pertains to the delay on the part of insurance companies in sending the certificate of motor insurance, the other pertains to disputes over the insurance cover. Let me begin with the first problem. Now usually, at the time of renewing your vehicle insurance, the insurance agent issues a cover note, with the promise that the certificate of insurance will follow within 15 days. If you see the definition of cover under the IRDA regulation on the protection of policy-holders’ interest, it makes it very clear that the cover note provides the evidence of the existence of an insurance contract. In other words, once the cover note is issued, it means that the insurer has undertaken to indemnify any loss or damage to your vehicle. However, the certificate of insurance is a more detailed document that you need to have.

But there are instances where the certificate is not sent to the consumer as promised. Now, even if the validity of the cover note expires and the certificate is not sent, the insurer cannot escape his liability as far as the insurance coverage is concerned. But the problem arises when the traffic police ask you for your vehicle papers, including the insurance certificate. If your cover note has expired and you do not have a certificate of insurance, then obviously you will be asked to pay a fine. Many people have faced this situation for no fault of theirs!

Whenever you get a vehicle insurance cover note, find out when the certificate would be issued. Ensure that it is sent promptly
Whenever you get a vehicle insurance cover note, find out when the certificate would be issued. Ensure that it is sent promptly

In this age of computerisation and electronic communication, I really do not see any meaning in issuing the cover note, particularly when insurance companies promise to give you a digitally signed policy instantaneously when you apply for a vehicle insurance online. So why not extend this facility to those who renew their policies or buy fresh policies through an agent as well? This is an issue that needs to be addressed by the regulator. In the meantime, whenever you get a cover note, find out when the certificate would be issued and ensure that it is sent promptly. If there is a delay, complain to the insurance company as well as the regulator — the Insurance Regulatory and Development Authority.

Let me now come to the second issue. I do not know how many of you remember this, but under the old motor tariff regime prior to 2002, insurance companies would allow vehicle owners to estimate the cost of the vehicle and collect the premium on the basis of that estimate (it was called the insured’s estimated value). However, if the vehicle got stolen or completely damaged and the insured made a claim, the insurance company would come up with it’s own estimate of the market value of the vehicle and would offer to pay only that amount. This would invariably be much lower than the insured amount.

Since this was obviously unfair, it would lead to disputes between the insured and the insurer and many complaints on this issue came up before the courts, consumer forums and even the Monopolies and Restrictive Trade Practices Commission.

Under the revised India Motor Tariff (IMT), the valuation of the vehicle is to be done on the basis of the manufacturer’s listed selling price and adjusted for depreciation as per the schedule specified in the tariff, up to five years of the age of the vehicle. Beyond five years, the value will be determined on the basis of an understanding between the insured and the insurer. This value, called the insured’s declared value (IDV), is to be fixed at the commencement of the policy period and will be treated as the market value and will not change during the currency of the policy.

In other words, in case of theft of a vehicle or complete damage suffered by a vehicle, the insurer has to pay the full IDV amount. He cannot reduce it or apply further depreciation. If he does, it is a violation of the IMT, calling for regulatory action. So in all such cases, complain to the regulator.

I would also recommend as compulsory reading, the IRDA regulation on the protection of policy-holders’ interests. It is a small document and worth reading. You can find it on the IRDA website — Click on the ‘Insurance Laws, etc’ icon on the left side and it will lead you to the ‘Regulations.’ Once you read this, you will be better equipped to deal with insurers.