Moneycontrol News
The Supreme Court has made a five-year third-party motor insurance mandatory for two-wheelers and a two-year policy for cars starting September 1. This has led to confusion among insurance companies since third party premium for FY19 has already been revised from April 1.
This move by the apex court is to ensure that vehicles don’t remain uninsured. Industry sources said less than 45 percent of bikes and scooters are insured while only about 70 percent cars are insured. According to the Motor Vehicles Act, all vehicles running on Indian roads are mandatorily required to buy third-party motor insurance.
This insurance protects the vehicle owner against third party liabilities in case of an accident. Here, death or injury to pedestrians or other vehicle passengers is payable by insurance. The own damage insurance is optional and protects the individual vehicle against damages.
At present, insurance companies offer two-wheeler third party insurance for upto three years while car insurance has to be renewed every year.
“We have less than two months to implement this order and no such product in the market. The bigger question is how the premium will be calculated,” said the underwriting head at a mid-sized private general insurance company.
Every year, Insurance Regulatory and Development Authority of India (IRDAI) revises the motor third party premium from April 1. The changes in premium are on the basis of claims reported on a particular category of vehicle in the previous year and the engine capacity.
Once the SC order is communicated to IRDAI, the regulator will be required to come out with a fresh set of rates for the two-year car insurance and five-year bike insurance in the motor third party category.
However, the premiums for the multi-year policy will be significantly higher. Insurance sources said it would not be a simple multiple of the yearly policy and customers could be reluctant to spend a higher sum on the product.
"On one hand, we are finding it difficult to get customers to renew a yearly motor third party product. Getting them to buy a multi-year product is going to be a challenge," said the distribution head at a public sector insurer.
Road accidents are the biggest killers in India. It is estimated about 150,000 people lose their lives on Indian roads every year.
Rakesh Jain, Executive Director & CEO, Reliance General Insurance, “In a country where over 50 percent of total vehicles are without insurance, the Supreme Court order is a welcome move. This will help in bringing the house in order and cutting the indiscipline of the vehicle owner. Its mandatory to have an insurance cover when vehicles are brought for the first time, but in many cases, they are not renewed in subsequent years. Today’s order of mandatory third-party insurance cover as well as for a longer tenure will help protect vehicle owners from the unforeseen liability.”
IRDAI constitutes a motor third party pricing committee
For the first time, IRDAI has decided to constitute a committee to examine matters relating to motor third party pricing and make recommendations on pricing for the year 2019-20.
The 16-member committee headed by member (non-life) PJ Joseph will have representatives from the finance ministry, road ministry, auto industry bodies as well as insurance companies.
This committee will look into the data related to pricing and also revisit the classification of vehicles.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
