‘Third party’ definition under motor insurance may be expanded to include owner-drivers

At present, third-party motor insurance, which is mandatory for all vehicles on Indian roads, covers only damages or injuries caused to other people or property by the insured vehicle.

India’s motor insurance framework is likely to undergo changes, with discussions underway to expand the definition of “third party” and bring owner-drivers under its ambit, allowing them to claim compensation for death or bodily injury resulting from an accident involving their own vehicle.

Industry sources said that the government draft, currently under discussion, is being circulated among stakeholders, including the Insurance Regulatory and Development Authority of India (IRDAI), for feedback and consultation. If approved, is likely to be rolled out in the upcoming winter parliamentary session, scheduled from December 1 to 19, 2025.

At present, third-party motor insurance, which is mandatory for all vehicles on Indian roads, covers only damages or injuries caused to other people or property by the insured vehicle.

It specifically excludes the owner or the person driving the vehicle at the time of the accident. The owner-driver can claim compensation only under personal accident (PA) cover or own-damage (OD) policies, which are optional and separately priced.

However, now, according to sources, the Ministry of Road Transport and Highways (MoRTH) has proposed amendments to the Motor Vehicles Act, 1988, to redefine key provisions governing third-party insurance.

According to officials familiar with the discussions, the ministry is considering amendments to Sections 145, 146, and 147 of the Act, which currently define third-party insurance and the liabilities of insurers.

The move stems from judicial developments following the Supreme Court’s observations in the Wakia Afrin vs National Insurance Company case, where the Court questioned the extent of insurer responsibility in cases where the owner-driver is injured or killed, according to a report by Livelaw.

The issue has been referred to a larger bench, and MoRTH’s proposal is likely a proactive step to bring legal clarity and align statutory provisions with judicial interpretation, sources said.

A senior executive at a general insurance company, who chose to remain anonymous said, "this change would naturally alter the scope of third-party insurance, but this need to be implemented by also adjusting premiums or risk pooling alongside, or it could raise loss ratios."

Third-party insurance currently makes up nearly 40 percent of India’s general insurance business and is a regulated segment with premiums determined annually by the government in consultation with IRDAI.

Sources say, insurers currently argue that any expansion of coverage must be accompanied by a corresponding premium revision, or they risk taking on disproportionate liability.

According to people aware of the discussions, MoRTH’s proposal comes at a time when IRDAI is already reviewing third-party premium rates for 2025–26.

The government is considering a hike of up to 10 percent in certain vehicle categories to offset rising claim costs, particularly in the commercial and heavy-vehicle segments. If owner-drivers are brought under third-party cover, that increase could be even higher.

For consumers, however, the proposal could mean better protection in case of self-injury or death, but also potentially higher premiums.

“While the intent to expand protection is fair, the structure needs careful calibration to avoid confusion and cost escalation,” said an executive at an insurance brokerage platform.

“The aim is to ensure that all victims of road accidents, including vehicle owners themselves, receive fair compensation,” another senior official said, adding that the ministry is aware of industry concerns and will strive for a balanced approach.