The General Insurance (GI) Council has proposed a new formula for determining the third-party (TP) motor insurance cover. In meetings with the Ministry of Road Transport and Highways (MoRTH), it suggests that the general insurers’ liability be capped at Rs 10 lakh and the balance amount be paid from the Motor Vehicle Accident Fund.
At present, there is unlimited liability as far as motor TP insurance is concerned. This means that if there is a death due to road accident, there is no upper limit on the compensation paid out.
The Council has proposed that a fuel cess be imposed on petrol/diesel purchased by customers, which would flow into the accident fund. MoRTH currently has a committee in place, with representatives from the general insurance companies, Department of Financial Services and insurance regulator IRDAI.
As per The Motor Vehicles Act, 2019, the Centre was to prescribe a base premium and the liability of an insurer for TP motor claims in consultation with the Insurance Regulatory and Development Authority (IRDAI).
How will it work? Say there is a road accident death where the victim’s family seeks Rs 15 lakh as compensation. Of this, Rs 10 lakh would come from the insurance company. The excess Rs 5 lakh will come from the Motor Vehicle Accident Fund.
However, GI Council has suggested that the excess Rs 5 lakh be paid out by the fund initially and be recovered recovered from the owner of the vehicle at a later stage.
But the transport lobby wants an unlimited liability for motor TP covers as it caps their liability.
The Council wants the Centre to levy a fuel cess, where contribution from insurers as well original equipment manufacturers (OEMs) could flow into.
According to industry data, the average insurance liability for road accident deaths is about Rs 8 lakh. About 90 percent of cases fall below the Rs 8 lakh category.
For individuals seeking a higher liability cover, the council wants to offer insurance for motor TP with limits of Rs 25 lakh, Rs 50 lakh, Rs 75 lakh and Rs 1 crore. Since the claims higher than Rs 8 lakh constitute only a small proportion, the premium for these additional covers could only be a few hundred rupees.
So, all individuals will have to mandatorily purchase the Rs 10 lakh cover. Those seeking higher cover can choose to avail of additional limits. If there is a case where the compensation sought is more than Rs 1 crore (for example: bus accident), the excess amount will be paid out by the fund.
How will this be beneficial? The Motor Vehicle Accident Fund ensures that compensation is paid in full to road accident victims. However, the recovery recourse would put the onus on the vehicle owners to take responsibility for the accident.
Motor TP claims ratios are around 130 percent, which puts pressure on the balance sheet of general insurers. A limited liability will ensure that non-life insurers only pay a fixed sum.
For customers, having a Rs 10 lakh policy means that the premiums could eventually come down. At present, IRDAI revises motor TP premiums every year due to the rise in claims. However, once there is a Rs 10 lakh base cover, there could be some pause to annual TP premium hikes.
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