The plight of the second hand vehicle market, which is extremely sluggish on account of recession in the economy, has been made worse with new entrants in the car segment. With Maruti reacting swiftly to the introduction of Santro, Matiz and Indica by bringing down the prices of its models, the second hand market is going to be hit harder.

Customers may benefit but insurance companies can look upon with dismay at lower collections and rising third party claims. The value of a vehicle drops by Rs 30,000 in the second-hand market almost immediately (especially in case ofcars) after it is purchased. As insurance is given on the market value of the product, there is a growing demand by customers to reduce premium further during the course of the year and get a refund on the premium paid earlier.

According to figures obtained from a second hand car dealer in Chennai, the 1997-98 model Ambassador diesel is available for Rs 1.8 lakh to Rs 2 lakh. Maruti 800 (1997) is available at Rs 1.85 lakh, Zen for Rs 2.7 lakh, Cielo (1996) for Rs 3.2 lakh, Ford and Opel Astra (1997) for around Rs 6 lakh. But with the price revisions on the new models, the prices of 97 models will come down drastically, he said. A Maruti 800 is expected to sell Rs 30,000 lower, Zen Rs 50,000 lower and Omni Rs 80,000 lower. There would be a difference of Rs 10,000 to Rs 20,000 in all other cars.

The insurance premium will have to be lowered accordingly. The value of trucks in the second-hand market has also dropped by Rs 1 lakh within a year of purchase. Some insurance companies are now asking for avaluer's certificate before refunding the premium, as the difference is substantial.

Despite the value of sum insured going down, gains are not substantial on this account. Few trucks ask for a comprehensive insurance -- most restrict themselves to third party.

Third party claims are increasing on account of the unlimited liability provision, taxing the companies further. Besides, the insurance companies had introduced in July 1998, full compensation of car/two wheeler parts and accessories without depreciation considerations. Which means that if a car requires any component to be replaced, the insurance company will foot the cost of the new part in toto, against the earlier practice of calculating depreciation of part destroyed and refunding that amount.

With premium coming down and with parts costing more, the outgo even in the case of own damage is worrying insurance officials. The exact loss/outgo on account of this policy will be brought out during the year end, when a decision could be made on theremoval of this clause.

Till such time, a customer can pay a premium as low as Rs 50,000 for his car (depending on its value in the second hand market), and get parts replaced up to a value of (say) Rs 48,000 in case of damage.

In the case of the transport segment, the Tariff Advisory Commission (TAC) has decided to restrict premium hike in trucks and buses following the massive opposition to the hikes announced last year. The TAC had envisaged a three part hike in third party premium, at regular intervals of more than 12 months so that by 2000, insurance firms (who are facing an outgo of 400 per cent on third party claims) will get a reprieve. Now this has been restricted to the first phase, with further hikes ruled out, causing a greater disparity between premium income and outgo.