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Motor insurance premiums may rise with mandatory bumper-to-bumper cover, say experts

The Madras high court said bumper-to-bumper insurance will be mandatory for all vehicles sold after September 1 and so must the cover for all occupants in a vehicle.

August 27, 2021 / 07:01 PM IST

The Madras high court’s decision to make bumper-to-bumper insurance mandatory for all vehicles sold after September 1 could result in an increase in premiums, experts said as they awaited regulatory directions.

According to the court order issued on August 26, in addition to the bumper-to-bumper insurance, the driver, passengers and the owner of the vehicle should be provided cover for five years.

The single-member bench of the court was referring to a case related to a challenge by an insurer against compensation of Rs 14.65 lakh awarded by the Motor Accidents Claims Tribunal in Erode. The court ruled that the insurer is not liable to pay compensation to the victim and that the owner of the vehicle could be held liable to pay compensation for the victim.

Against this backdrop, Justice S Vaidyanathan said, “This court directs that whenever a new vehicle is sold after September 1, it is mandatory for coverage of bumper-to-bumper insurance every year, in addition to covering the driver, passengers and owner of the vehicle, for a period of five years.”

Potential impact


Bumper-to-bumper motor insurance offers complete coverage for vehicles regardless of the depreciation of its parts. Experts said bumper-to-bumper cover would also mean that a motor own-damage policy must be sold with all vehicles from September 1.

There are three aspects to motor insurance currently: third-party insurance, which is mandatory for three years for four-wheelers and five years for two-wheelers; own-damage policy, which covers the owner’s car and is voluntary, and personal accident cover, which is compulsory for the first year for the vehicle owner and optional from the second year.

Experts said the court order would make the motor own-damage policy mandatory for as long as the owner retains the vehicle.

“The premiums may go up if we go by what the current order states and how it is interpreted,” said an official with a private sector insurer, requesting anonymity.

Further, the order makes personal accident cover compulsory for all passengers in a vehicle, whereas this is currently mandated only for the owner of the vehicle, and this could also impact premiums, the official added.

According to Vishal Balabhadruni, a senior research analyst at CapitalVia Global Research, the direct effect will be an increase in the on-road prices of vehicles including premiums, which will benefit insurance companies. A new policy will probably have to be designed, Balabhadruni said.

Ishan Shah
ISO 27001 - BSI Assurance Mark