Insurance Penetration in the Used Car Market: Challenges and Opportunities

The Indian used car market is experiencing rapid growth, driven by rising disposable incomes, a burgeoning middle class, and an increasing desire for personal mobility2. However, despite this growth, insurance penetration in the used car market remains a significant challenge.

Challenges:

Low Insurance Uptake: Despite the mandatory requirement for Third-Party (TP) Motor Insurance, over 50% of vehicles on Indian roads remain uninsured3. This gap leaves many accident victims without proper compensation and exposes car owners to substantial financial risks.

Awareness and Compliance: 

Many used car buyers and sellers lack awareness about the importance of transferring insurance and retaining No Claim Bonuses (NCB). The unorganised nature of the market exacerbates this issue, making it difficult to ensure compliance.

Complex Transfer Processes: Transferring ownership and insurance of used cars involves multiple steps, including obtaining and filling out transfer forms and ensuring the insurance is updated. This complexity often deters buyers from completing the process.
Opportunities:

Digital Platforms: 

The rise of digital marketplaces and AI-powered platforms is transforming the used car market, making the buying and selling process more transparent and efficient. These platforms can also facilitate easier insurance transfers and renewals4.
Organised Sector Growth: The increasing presence of organised players in the used car market, such as Maruti True Value and Car Dekho, is helping to bridge the trust gap. These players offer certified pre-owned cars with comprehensive warranties, encouraging insurance uptake.
Regulatory Support: Recent amendments by the Ministry of Road Transport and Highways (MoRTH) aim to promote transparency and ease of doing business in the used car market. These regulations require used car dealers to obtain certificates from registering authorities, ensuring greater accountability and compliance.

Facts and Figures:

The Indian used car market is valued at approximately $32.44 billion and is expected to reach nearly $73 billion by FY 202867.

The market is projected to grow from 5.1 million units to 10 million units by FY 2027-288.
Over 50% of vehicles on Indian roads are uninsured, highlighting the significant protection gap in the market.

In conclusion, while the challenges of low insurance penetration in the used car market are substantial, the opportunities presented by digitalisation, organised sector growth, and regulatory support offer a promising path forward. By leveraging these opportunities, the industry can enhance insurance penetration, providing greater financial security for car owners and contributing to the overall growth of the market.

For more insights, refer IBB Report 2023