How the insurance premium of a new car is calculated

[Deep Blue]

Hi,

I wanted to know how the insurance premium of a new car is calculated and Is it same across country?

[Investorboy]

The premium mainly depends on the cost/IDV of the vehicle, year of manufacturing, make, CC of the car, seating capacity, cost of electrical & non-electrical items therein, cost of CNG/LPG kit (if any), type of cover (comprehensive, passengers' cover, 3rd party etc.), no claim bonus (for renewals) etc.


Besides the above, the premium also differs depending upon the grade your city falls in -
Grade A cities are Ahmedabad, Bangalore, Chennai,Hyderabad, Kolkata, Mumbai, N. Delhi & Pune,

Grade B. Rest of India
For Grade A cities, premium is higher than that for Grade B cities.

[Sanjay]

How do we calculate the valuation of the car decreases year by year and similary how the insurance premium is calculated in subsequent years?

[Investorboy]

The depreciation,there is standered formula it’s 5% on ex-showroom price of new cars (1st insurance), 15% on 1st renewal and 10% thereafter on each subsequent renewals – provided no claims are made, i.e. it would vary/differ a little if claims are lodged/settled.

[Sanjay]

Why there is difference in premium on the basis of cities?

[Investorboy]

The difference is mainly because cars are more prone to accidents in big metro cities with heavy/fast traffic, and may be also because of higher overheads of insurance companies in Grade A cities. The difference is, however it is not much as compaired to grade B , negligible.

I am not aware of the calculations/rates based on which premium amount is
decided.

[Tarun]

Thanks Investorboy for explaining the whole procedure and now its very clear to me (who is from non insurance background).

Thanks again!
Tarun