Parameters Used by the Underwriter – The Motor Vehicle

The underwriter uses various parameters to underwrite the motor insurance risk. One of the major parameters used in underwriting is the motor vehicle.

There are many types of vehicles on the road. We may find simple two-wheelers (also known by different names such as mopeds, bikes, scooters, and motorcycles) or we may find three-wheelers also known as auto-rickshaws or tuk-tuk or simply auto. 

Then there are four-wheelers like cars, jeeps, and tempos, etc. There are other vehicles that have more than four wheels. These may be trucks, dumpers, haulage vehicles, etc. Overall, it is important to know the size and capacity of the vehicle for insurance. 

Categories of motor vehicles 

Generally, vehicles are categorized into different kinds depending upon their structure and usage. Let us have a look at the different categories of vehicles for the purpose of rating. 

  1. Structure and use of the vehicle 

The structure and use of vehicles are an important element in underwriting. Some types of cars are prone to accidents like Sports utility vehicles are prone to more toppling and pose a higher risk than Sedan cars. Bigger cars or vehicles cause higher liabilities in respect of third and own damage risks. Hence the premium charged for bigger vehicles is more. 

Depending upon the structure and usage the vehicles are categorized as follows:

  •  Private vehicles
  • Commercial vehicles
  • Sports Cars 

Private vehicles 

The private vehicle is used for personal usage; it may be used for social, domestic, and pleasure purposes. Usually, the individual buys the vehicle either with his own funds or through a financier. The usage is usually for going to the office, shopping, dropping and picking the kids from school, visiting places for recreation, etc. 

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Under the private vehicles, based on the structure the following types are popular 

  •  Motorcycles
  • Private auto rickshaws
  • Private car
  • Other private vehicles
  • High-value vehicles 

The risk of a private vehicle is considered to be better than a commercial vehicle. The private vehicle is usually used either by individuals or juristic entities. But due to its sparse usage, the chances of accidents are much lower. Hence the underwriters do a preferential rating for the private vehicles. Even the underwriters are willing to give better terms and less excess or deductible without any extra premium. 

Commercial vehicles 

Commercial vehicles are vehicles used to carry goods or fare-paying passengers. The purpose of a commercial vehicle is to generate revenue, hence the greater the usage and the greater the speed the revenue generation is higher. Because of the type of usage, more accidents are occurring with commercial vehicles. From the point of view of insurers, in respect of the overall portfolio, the commercial vehicle generates more premium than the personal or sports vehicles. As far as the rating is concerned, it is more complex than the private vehicles. The underwriter again differentiates groups within the commercial vehicles for underwriting purposes. The underwriter also uses the computer or smart systems to aid him in rating the commercial risks. 

Under the commercial vehicles, once again based on the structure the following types are popular

  • Motor cycles
  • Commercial auto rickshaws
  • Commercial cars
  • Other commercial vehicles

Based on the usage some of the vehicles (the list is not exhaustive) can be classified as follows:

  • Goods carrying vehicles
  • Fare paying passenger vehicles
  • Ambulances
  • Trailers
  • Reefers
  • Pneumatic vehicles 
  • Flatbed haulage trucks
  • Light commercial vehicles
  • Heavy commercial vehicles
  • Medium commercial vehicles
  • Buses 
  • Mini buses
  • Van 
  • Coaches
  • Tipper
  • Dumper Bobcat
  • Poclain 
  • Towing vehicles
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Sports cars 

Sports cars are different cars and are specially designed to run at high speed. The prices of the cars are usually higher. The repair cost of these cars is very costly. So, it is difficult to find no deposit car insurance for sport cars. Hence it requires separate underwriting. Unless there are some compulsions or business requirements, the majority of the underwriters prefer to decline this type of risk. 

The underwriter makes sure that the sum insured of the vehicle is within his authority as most insurance companies restrict the underwriting limit of the underwriter in the case of sports cars. The own damage and damage to the third parties are tremendous due to the high speed of these vehicles. Moreover, the users of these vehicles are usually youngsters. Apart from higher rates the underwriter also increases the deductibles. 

  1. Age of the vehicle 

The age of the vehicle is an important factor for underwriters especially whilst writing a package policy. If you have an old vehicle you may be able to get auto insurance rates under $50 per month. Third-party insurance may not be much of a problem. But most of the companies have guidelines for underwriting vehicles for package policy. 

One of the main reasons of these guidelines is the principle of indemnity, which states that the insured should be in a similar condition after the loss as he was before the loss. Hence if an old vehicle is insured and the insurance company pays the claim without taking into consideration the depreciation in parts then it will be a violation of the principle of indemnity. 

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The underwriter will not be interested to underwrite a vehicle that is more than 5 years old. However, he may insist upon various conditions like inspection of the vehicle, especially for personal lines insurance. Personal line insurance is the insurance of vehicles belonging to individuals, usually private vehicles. 

He may also incorporate certain conditions like depreciation clause and higher deductible to safeguard the interest of the insurance company. In most cases, the underwriters are not willing to insure a vehicle beyond 7 to 10 years under the package insurance policy. 

  1. Size and capacity of the vehicle 

Size and capacity of the vehicle is also an important consideration for underwriting purposes. Commercial vehicles are classified based on the size like a light commercial vehicle, medium commercial vehicle, or heavy commercial vehicle. They also may be classified based on the tonnage. 

Cars are usually categorized based on horsepower or cubic centimeters or liters. Passenger carrying vehicles are based on the manufacturer’s specified seating capacity like 8 seaters, 30 seaters, and 55 seaters, etc. One of the criteria used for rating is based on the classification of vehicle-based on the size and capacity of the vehicle.

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