Impact of Vehicle Modifications on Motor Insurance Premiums

For many vehicle owners, modifications are a way to personalize their ride—whether it’s a stylish alloy wheel, a high-end sound system, or converting a petrol car to CNG. But what most customers don’t realize is that any modification to the standard vehicle design can impact their insurance premium, coverage, or even claim settlement.

As an insurance professional, it’s vital to explain how modifications affect risk and pricing.

🔎 What Are Modifications in Motor Insurance?

A modification is any alteration to the vehicle’s structure, design, performance, or usage that makes it different from the manufacturer’s standard specification.

They broadly fall into categories:

Performance Modifications – Turbo kits, engine tuning, suspension upgrades.
Fuel Modifications – Adding a CNG/LPG kit.
Aesthetic Modifications – Alloy wheels, fancy lights, body kits, vinyl wraps.
Functional Modifications – Installing roof racks, carriers, or structural changes for commercial use.

⚖️ How Do Modifications Affect Premiums?

1. Increased Risk → Higher Premium

Performance upgrades increase speed and accident risk → insurers may add loading (extra premium).

2. Fuel Change → Mandatory Endorsement

Installing CNG/LPG kits requires policy endorsement and extra premium (fixed % of IDV as per tariff).

3. Accessories → Increase in IDV

Expensive accessories (stereos, alloy wheels, GPS systems) raise the Insured Declared Value (IDV), which increases the Own Damage (OD) premium.

4. Undisclosed Modifications → Claim Issues

If a modification is not declared, insurers may reject claims or pay only partial amounts.

📊 Example: CNG Kit Installation

A petrol car worth ₹8,00,000 is fitted with a CNG kit costing ₹50,000.
The owner must inform the insurer to endorse the policy.
Insurer charges extra premium (say, 4% of kit value = ₹2,000).
If the kit is not declared, and later the car catches fire due to the kit, the insurer can reject the claim entirely.

👉 Moral: Transparency saves claims.

❌ What Modifications Usually Don’t Affect Premiums

Cosmetic paint jobs or stickers.
Minor decorative accessories (seat covers, mats).
Non-structural cosmetic changes (as long as they don’t impact vehicle safety).

💡 Sales Tips for Agents

Educate Customers – Many owners don’t realize they must declare modifications. Use real examples to explain risks.
Promote Transparency – Assure customers that declaring mods may increase premium slightly, but it saves them from claim rejection later.
Upsell Accessories Cover – For high-end accessories, suggest accessories add-on cover to protect their investment.
Leverage Niche Markets – Target CNG users, car enthusiasts, and taxi owners who often modify vehicles.

✅ Conclusion

Vehicle modifications may look good or improve efficiency, but they directly affect insurance premiums and claim validity. As an insurance professional, your role is to guide customers:

👉 “Don’t hide your modifications. Declare them, pay a small extra premium if needed, and protect your vehicle fully. Otherwise, one accident could cost you lakhs.”