It is not mandatory to buy car insurance from auto dealer

While buying a new car or a two-wheeler, most of us would have purchased the insurance too from the auto dealer. It is convenient to buy the vehicle and the insurance (which is mandatory) from the same place. Especially if the dealer is also helping you with the loan process. And when offered discounts and other benefits like free servicing or free car-wash, nobody would say no to the insurance.

But if you did some research with an independent insurance broker or an aggregator, you would get better rates. Or you would be saved from buying an expensive insurance with add-on covers that you may not need.

Strong distribution

Auto dealers are one of the biggest distribution channels for insurance companies when it comes to retail motor insurance. According to Rajive Kumaraswami, MD and CEO, Magma HDI General Insurance, the company is looking to increase its distribution tie-ups with auto manufacturers like Maruti and Mahindra & Mahindra for passenger vehicles. It already has a tie-up with Tata Motors for commercial vehicles. "Customers buy the car and the insurance together from the manufacturer because it is convenient. We offer the same discounts on all the platforms that we sell insurance,'' he says.

Auto dealers charging higher rates for insurance was the case a year ago, but following the Motor Insurance Service Provider guidelines the rates have moderated, says Sharad Mathur, senior vice-president, SBI General Insurance. Now auto dealers are regulated by Insurance Regulatory and Development Authority of India (Irdai) and there are rules regarding the pricing of the insurance offered through dealers.

For SBI General, about 85-90% of the business comes through top dealerships like Maruti, Mathur adds.

Motor insurance cover being a prerequisite for the registration of a new vehicle, typically, customers buy a motor insurance policy from automotive dealers while purchasing a new vehicle, says Anurag Rastogi, member of executive management, HDFC ERGO General Insurance. "The renewal of the policy, in the subsequent years, too, is done through the same dealers as customers are mostly in contact with them for servicing their vehicles,'' he adds.

Perception or fact?

According to Mathur, there is a perception that auto dealers charge additional premium, but in reality the price is higher because of add-on covers.

"An insurance agent or aggregator would give a comprehensive insurance with own damage and third-party cover. But an auto dealer would give add-on covers like return to invoice, and so on. It is true that customers may not need all the add-covers. In that case you can reduce the premium by opting out of these,'' Mathur adds.

But in most cases customers are generally unaware that they have an option of declining the comprehensive motor insurance offered by the dealer, points out Devendra Rane, founder and chief technical officer, Coverfox.com.

"The car/bike dealer bundles insurance in the total price payable by the customer for the vehicle. People are free to buy an insurance plan as per their requirements from the open market. One can just go online, compare various available options and buy the best-suited plan from an online broker or web aggregator. Buying online can help save big on their insurance premiums.''

Agreeing that the motor insurance policy sold by the dealer could be loaded with various add-ons, Rane says, "Some of the offered riders may or may not be useful, but the customer does not have a say in what he/she wants. On the other hand, buying insurance online gives the customer complete freedom of choosing the add-ons he/she wants to attach to his base comprehensive motor insurance policy."

In fact, just as it is possible to buy accessories at a lower price at a multi-branded showroom, similarly, customers can often get better value for money by comparing the price the insurance on other platforms, says Sajja Praveen, motor business unit - head, Policybazaar.com.

"The saving can be as much as Rs 10,000 on the lower side to as much as Rs 30,000-40,000 depending on the size and value of the car. Most of the time the discounts offered by the auto dealers are pre-determined. The dealers may say they are giving you discount on the insurance, but your policy document will not say so. The dealer may also say that along with insurance they can offer you extended or cashless insurance. But the fact is that the cashless option is something the insurance company offers, and not the dealer or agent. Extended warranty is the only added benefit the dealer is able to offer,'' he says.

With the long-term third party insurance (three years for four-wheelers and five years for two-wheelers) now made mandatory, the price of the insurance has become critical for customers. Hence, it is important to look around and compare prices before you select the insurance.

To buy motor insurance, customers need information such as chassis number and engine number. But it may be difficult to get this beforehand from the dealer, which is another reason why customers prefer to buy the insurance bundled with the vehicle from the dealer, Praveen adds.

Precautions to keep in mind

One must keep an eye out on what is being offered, be it from a car dealer or online. "The best thing to do is to ask the dealer to separate the price of insurance from the quoted price and get a complete breakdown which shows the cost of insurance,'' says Rane.

Do ask for details of the insurance company along with the additional add-on covers that are attached to the policy. Next, one should log on to an online broker or web aggregator portal and compare all available plans. It is only when one is truly satisfied that he/she is getting the best possible deal, only then should the policy be purchased.

LOOK BEFORE YOU BUY

• Compare price of the insurance offered by the auto dealers as well as insurance brokers and aggregators
   
• Avoid add-on covers that are not relevant for your vehicle as this will push up the cost of the insurance
   
• Benefits like cashless insurance is provided by the insurance company irrespective of whom you buy insurance from