The exposure draft of IRDA (Insurance Regulatory and Development Authority) has proposed to include paint material in the list of items which have depreciation rates. The move is aimed at having a uniform practice across the country and across all the non-life insurance companies.
According to general insurers, the recommendation would help in unifying the practice of applying depreciation across insurers. It may also lead to lower premium for customers provided the painting charges do not increase in the near future.
IRDA said that various practices are being followed by different general insurers with regard to the application of depreciation on painting. “The Authority has received representation from the General Insurance Council highlighting the need to recognise the depreciation aspect and also to have a uniform practice across the country and across all the non-life insurance companies,” said IRDA in an exposure draft.
According to the regulator, paint will be included in the category of ‘rubber, nylon/plastic parts, tyres and tubes, batteries and air bags’ which at present has depreciation rate of 50%. Since paint material is polymer based and hence the depreciation applicable to plastic parts can be applied for it, the regulator added.
Therefore, it is recommended that depreciation rate of 50% for painting charges, would be applied on the material cost which shall be 35% of total painting charges or the actual, whichever is lower. IRDA said that the net effect would be the maximum depreciation rate of 17.5% being applied on the total painting charges. IRDA has proposed to general insurers to make the above changes in individual package policy in their policy contracts. The stakeholders have been asked to give their suggestions on the exposure draft to the regulator by 9 November.
One of the insurers said that if a car is repaired, painting charges are usually 55% of the claim payout. This increases the claim cost as the car owner would normally ask to paint his entire car instead of a small damaged portion, the media reports said.
