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Auto insurers to deduct depreciation on painting claims

Preeti Kulkarni, ET Bureau Nov 7, 2012, 11.59AM IST

For car owners used to insurers paying for their vehicles' painting-related repairs, things are set to change. Your insurer may soon stop footing your entire painting bill.

The Insurance Regulatory and Development Authority (Irda) has recently proposed to include painting in the group of depreciable parts and fix the rate of depreciation for it.

At the moment, several companies don't deduct the depreciation element from the painting charges, and painting-related claims are fully reimbursed. However, acting on general insurers' demands, the insurance regulator has recently proposed to bring painting into the ambit of depreciable parts like rubber, plastic parts, tyres and tubes, batteries, glass components and so on.

Irda's contention is that since paint is manufactured from polymer, it should be included in the group of plastic parts. The regulator has proposed to fix 50% as the rate of depreciation for painting materials.

For the purpose of calculating the amount of depreciation, painting materials will be assumed to be 35% of the total painting charges.

"Effectively, insurers would deduct 17.5% (50% of 35%) from painting charges once Irda comes out with a regulation. The proposed regulation will be applicable only for the policies issued after the date of regulation by Irda," says KN Murali, head, motor vertical, Bharti-AXA General.

"Currently, as per General Regulation 9 of Motor Insurance Tariff, the depreciation quantum is not fixed for 'painting material' though there is an element of painting material added at the time of repairs. Painting material has limited life and ideally insurers should deduct depreciation while settling the claim," he adds.

"Today, some insures do not deduct any depreciation amount from the material cost, while others do, but the rate varies as per the insurer and also the location. Irda's move will bring in some uniformity in this space. It will, if implemented, also ensure that customers are not left confused due to the disparities in insurers' depreciation policies," adds KG Krishnamoorthy Rao, MD and CEO, Future Generali India Insurance.

In simple terms, if you make a painting-related claim of say Rs 100, the insurer will not be liable to pay more than Rs 82.5. "From the policyholders' perspective, the proposed change will increase their share of expenses at the time of accidental repairs claim... it definitely means lower claim settlement amount for policyholders," says Divya Gandhi, head, general insurance and principal officer, Emkay Insurance Brokers.

However, those who do not make a claim in a year might have something to gain from this draft regulation. "For such policyholders , the premiums could decline in the long run, as the costs incurred by the insurers go down," says Rao of Future Generali . "Since the outgo will come down for the insurers, they might offer discounts in premium on a case-to-case basis," says Arvind Laddha, CEO of Vantage Insurance Brokers. However, even if this benefit is actually passed on to the policyholders , the impact will be seen only over the long-term .


All motor insurance policies come with a depreciation clause, which stipulates that the insurer will deduct a sum at the specified rate on the components replaced or materials added at the time of repairs after an accident. "The depreciation quantum is dependent on the type of parts replaced or materials added, besides the age of the vehicle. For example, glasses will not have any depreciation deduction, while plastic parts will have deduction of 50% towards depreciation. Metallic parts will have depreciation based on the age of the vehicle. Younger the vehicle, lower will be the depreciation deducted for metallic parts replaced or materials added in the vehicle," says Murali.

This apart, the clause plays a role at the time of renewing your insurance policy every year. The depreciation amount is deducted from the current ex-showroom price of your vehicle to arrive at its insured declared value (IDV) - or the total sum assured - for the year. The reduction is calculated as per the prescribed standard grid specifying the rate of depreciation as per the vehicle's age as also for various parts.


If you wish to avoid the dent in your wallet, you can opt for zero depreciation covers. Such products are offered as add-ons to comprehensive insurance policies. However, factor in the additional premium for such covers.

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