2W’s sales may be hit by third-party insurance premium hikes, but there’s a glimmer

Note that the cost of owning 2W is increasing. In April 2020, changes to the stringent emission norms prompted 2W manufacturers to increase prices. In recent quarters, companies have resorted to price hikes to bear the burden of rising commodity prices. Also, higher fuel prices have not provided any respite.

Hero MotoCorp Ltd Executive Director Vikram Kasbekar noted that the increase in third party insurance rates at a time when the industry has just started to recover will adversely affect the sentiments of customers as it will lead to 2W demand in India. The upfront cost will increase further.

Recall that in September 2018, a change in the motor insurance policy for the new 2W resulted in a significant increase in acquisition costs.

But this time there is a ray of hope. The rates have been hiked only for premium class vehicles that exceed 150cc (cubic centimetres). There has been no hike in third-party insurance rates for entry-level vehicles (75cc-150cc), which account for the largest share of the 2W domestic market in terms of volume. Note that the rates have been increased for less than 75cc 2W, but there are no flagship products available in the market in this segment.

Moreover, as per ICRA Research, the on-road price of the 250cc motorcycle has increased by less than 1% due to the increase in rates.

“As demand remains fragile, further increase in acquisition costs may hamper demand recovery for 2W in the near term. In this regard, the fact that the entry-level 2W segment has been excluded from the insurance price hike is a relief to the industry,” ICRA said in a press release.

Going forward, the reopening of colleges and offices will boost demand for 2W. Also, rural demand is likely to remain strong on expectations of a normal monsoon. However, semiconductor shortages and inflationary pressures remain a cause for concern.