May 3: Anita had purchased a new car on April 29, 1997, with a loan from Bank of America. An agent had taken care of the processing of the loan and insurance of the vehicle. At the time of delivery of the car, the dealer handed over a National Insurance Co Ltd cover note to Anita. She assumed that the document given to her was the insurance policy for her car. She, however, did not look at the period of insurance given on that note. About 11 months later, Anita received a reminder from BoA telling her that her car insurance was expiring on April 28, 1998. She reached out for the National Insurance cover note to tally the dates. She found to her horror that the cover note stated the expiry date as March 26, 1998.Subir, who had also bought a car last year, faced a similar confusion. He panicked when he opened the insurance cover note, which mentioned the date of insurance as one month prior to the date of delivery of his car. Subir was shocked when he discovered that he had been driving without a cover forseveral days, and immediately rushed to the insurance company for a renewal.
Maya went through the same route as Anita and Subir to buy a car six months ago. She, however, took a loan from ANZ Grindlays. Although it's not time yet for the first renewal of insurance, she happened to check the insurance cover note recently. Again Maya saw what Anita and Subir had found -- the date given on the insurance cover note was one when the car was not even registered.
After all this, did you say you didn't know the difference between a car insurance policy and an insurance cover note? Your banker from whom you took a loan to buy that brand new car is quite likely to dismiss you as an `ignorant customer'. The insurance company, where you got your car insured, may just wear that `you-ought-to-know attitude'. And you are lucky if the agent, who had promised you a comprehensive deal, is around to help you out. In the midst of all this, you wonder where you had gone wrong.
Rahul Khosla, vice-president & directormarketing of Consumer Loans, Bank of America, explains the insurance requirements and procedure -- from the stage of availing a loan to the delivery of the car.
Insurance is to be done directly by the customer and is a pre-requisite for availing a loan from Bank of America (or any other financier), says Khosla.
Generally, on a loan for purchase of a new car, the insurance company issues an open insurance cover note which covers the car on insurance from the date of delivery of the car and the insurance is then valid for 12 months from that date.
The open insurance cover note confirms to the bank that it is the loss-payee in case of an insurance claim since the car is the collateral security for the bank's loan to the borrower. Also, the cover note ensures that the car being financed by the bank is comprehensively insured (as against third party insurance), Khosla elaborates.
The customer submits a copy of the open insurance cover note to the bank as part of the loan documentation based on which theloan is disbursed by the bank, adds Khosla.
Once the customer has taken delivery of the car, he/she has to submit a proof of the same (through a copy of the delivery challan, or a copy of the registration certificate, or a copy of the invoice from the dealer) based on which the insurance company issues an insurance policy. This insurance policy is valid from the date of delivery of the vehicle and not from the date of issue of the cover note, Khosla says summing up the insurance scenario.
In other words, in the cases given above, the customers were supposed to intimate their respective insurance companies about the delivery of the car, and they had not. So, there was no insurance policy for their cars. And therefore, the resultant `confusion' regarding the expiry dates.
But how is the customer expected to be so insurance-savvy as to know everything there is to know about insurance without any assistance from either the insurance company or the financier? A senior official of the National InsuranceCompany Co Ltd agrees that the insurance companies should be more customer-friendly. Even if the customer is not aware of a certain rule, the insurance companies must tell him the right from the wrong, he adds.
Talking of the blank insurance cover note issued by insurance companies, this official says that such a note, without any chassis and engine number, is illegal. An insurance note, based on only an intention to buy a car, does not make sense, he admits. ``However, the insurance companies have given in to the prevalent market conditions, and have therefore made provisional arrangements of issuing blank cover notes,'' the official adds.
Khosla, on the other hand, says that BoA is not in the business of insurance. And, educating the car loan customer on insurance is outside the scope of the loan process, according to Khosla. BoA is, however, doing an additional service to the customer through a letter informing him of the date of expiry of the insurance. This date of insurance expiry is based on thedate of registration of the car (as per the registration certificate), says Khosla.
Why then doesn't the bank send any reminders to its car loan customers regarding the process of issue of insurance cover, once the car registration is completed? Replies Khosla, ``The bank is concerned with ensuring that the underlying asset we have financed (the car in this case) is adequately insured. This is done by requiring that a valid cover note is issued prior to the bank disbursing the loan.'' He continues, ``Once the car registration is complete, the bank usually gets a copy of the registration certificate in due course. It is only on receipt of the registration certificate that the bank comes to know that the car has been delivered.'' He adds, ``Most customers in the meantime would have already received the insurance policy through their insurance agents/ insurance companies as per the normal insurance process.''
But, even if the insurance policy has not been issued, the customer is appropriately covered forinsurance, according to Khosla. In the event of a claim, the customer can approach the insurance company with the cover note and the copy of the registration certificate. The insurance company will first issue an insurance policy and then process the claim, he says.
But the National Insurance Co Ltd official feels otherwise. ``If you don't have a policy already, getting the claim processed can be complicated and time-consuming.'' Ultimately, the insurance company will process the claim, but be prepared to collect a number of documents and signatures from your car dealer, agent and financier, the National Insurance official adds.
Finally, if you're planning to buy a car on a loan, don't depend on your financier, insurance company or agent to guide you around with do's and don'ts. Rather, help yourself. And remember to get in touch with the insurance company, which issues the cover note, for a policy immediately after you collect your car.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
