At present, an insurance company has no fixed liability for third party motor insurance. Hence, a deceased's kin can claim any amount from the insurer.
The Motor Vehicles (Amendment) Bill 2017 is likely to be tabled in the Parliament once the session begins on June 17. The bill that has been pending approval for almost three years may finally see the light of the day in the current session once it is reintroduced. However, insurance companies are pinning hopes on changes in the “unlimited liability” provision.
As per the current structure of the bill, an insurance company has no fixed liability for third party motor insurance. This means that, if a person is hit by a vehicle and dies, his/her family can claim any amount from the insurance company. Third party motor insurance is mandatory for all vehicles running on Indian roads.
An earlier version of the bill capped the liability at Rs 10 lakh. However, after strong protests from the transport lobby, this proposal was dropped.
Insurance companies have justified the need for a “limited liability” third-party motor cover, saying that there is a fixed compensation for air and train. The compensation for death in a rail accident is Rs 8 lakh while, in case of an air accident, it is determined by the special drawing rights.
Road accidents have no such compensation limits. Thousands of cases are pending in courts and are heard in Lok Adalats. These pertain to the quantum of compensation payable due to death in a motor accident.
There is also a complaint from the industry that there is an annual increase in the average compensation pay-out by 15-20 percent. On the other hand, the insurers' view is that the permitted motor third party premium hikes every year is not commensurate with the increase in the claims paid.
Insurance companies have suggested that each motor TP product should have two components, limited liability and unlimited liability. Limited liability policies would have a fixed limit of Rs 15-20 lakh payable if death occurs.
This will mean that the individual, who is responsible for a death during a road accident, is liable to pay any compensation amount over and above the limited liability of the insurer.
However, if an individual gets an unlimited liability TP cover, the insurance company will pay the entire compensation in case of death. This policy will be priced significantly higher than a limited liability cover.
At a time when general insurers are struggling with the high underwriting losses in the motor TP segment, it will be crucial to watch as to what shape the bill will finally take.
Customers' liabilities will go up if a cap is placed. But, insurers stand to benefit.The Great Diwali Discount!
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