How Climate Change Affects Car Insurance Premium?

Climate change is not just an environmental issue now, it also unexpectedly impacts us financially, including increasing car insurance premiums. Vehicle damages from natural disasters has been a significant component of motor insurance policies. As severe climate disasters continue to impact India with growing frequency, insurers are changing their policy terms, pricing structures, and risk assessments. But what does this mean for you as a car owner? Let's dive into the details.

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Impact of Climate Change on Car Insurance Premiums

Here is how the car insurance companies are facing more risks than ever as a result of climate changes:

1. Rising Frequency of Natural Disasters

   Gone are the days when natural calamities like floods, hailstorms, wildfires, and earthquakes were rare. Cities with poor drainage witness more vehicle damage in the event of extreme & unpredictable rains.

   As a result, there is a growing number of car insurance claims for weather-related damages, which is leading to insurers paying out more claims than ever, consequently driving the rise in increased premiums.

2. Increasing Vehicle Repair Costs

   Weather-damaged vehicles are complex & costly to repair. Flooded roads cause damage to car engines, hailstorms result in denting body panels, and extreme heat degrades batteries & tires. Further, spare parts are becoming more expensive because of supply chain disruptions worldwide, which leads to delays and increased prices of car parts.

   Moreover, modern vehicle costs continue to surge as they are equipped with advanced safety systems & sensors, making part replacement expensive. Hence, insurers cover greater replacement costs if a vehicle suffers a total loss due to climate-related damages.

3. Location-based Premium

   Insurance companies in India determine risks based on the following two zones:

   • Zone A (Metropolitans): It comprises major urban cities like Delhi, Mumbai, Bengaluru, & Chennai. These cities witness intense monsoons, floods, and infrastructural issues, which results in more frequent & severe claims. Due to the high vehicle density & severe traffic congestion, there are increased risks in Zone A, consequently higher car insurance premium rates.
   • Zone B (Non-Metro Cities): It encompasses semi-urban & rural areas with less severe weather incidents, resulting in lesser car insurance claims. Therefore, insurers are able to offer policies at more affordable rates.

How Insurers Are Adapting?

Car insurance companies are making some notable changes in their policies in order to deal with the financial strains posed by climate change. Some of them include:

• Higher Deductibles: Insurance companies require policyholders to pay a greater percentage of the repair costs before the policy coverage begins.
• Revised Coverage Terms: Some insurers are implementing exclusions or restrictions for weather-damages, as a result of which policyholders might have to opt for more add-ons for a comprehensive protection.
• New Climate-related Add-ons: Some insurers now offer add-ons in car insurance intended specifically to guard against weather-damages.

What Car Owners Can Do?

To deal with rising car insurance premiums, here are some smart choices you can make to reduce risks:

1. Opt for Comprehensive Coverage

   Comprehensive car insurance offers broader protection than the basic third-party policy. Its coverage includes damages from floods, hailstorms, earthquakes and other accidents caused by bad weather. While it costs more, it provides essential financial protection in the event of any natural disaster.

2. Install Vehicle Safety Devices

   Car insurance price go down for cars equipped with safety features. Hence, consider installing an anti-theft device and safety alarm to prevent theft in order to get a potentially lower premium rate.

3. Ask for NCB Discounts

   Policyholders who don't file car insurance claims receive NCB (No-Claim Bonus) from their insurers, which is a reduced premium amount at the time of renewal.

4. Consider Usage-based Insurance

   Pay as you Drive (PAYD) or Pay how you Drive (PHYD) are usage based insurance (UBI) models. Under these models, insurance premiums are based on your driving behaviour as well as the number of kilometres you drive. These policies benefit those who don't drive frequently or for those residing in regions with lower risks.

Over to You,

Due to extreme weather conditions becoming more common, insurers are updating car insurance premiums, coverage, and more. Vehicle owners must be careful while choosing a car insurance policy. It is not just about getting a good deal but about getting the best coverage at the best price. Moreover, it is a great idea to explore relevant add-on covers that offer coverage for multiple climate-related risks, and then pick the best car insurance policy that gives you right coverage despite the weather.