General insurers have sought a cap of ₹10 lakh on liability for third-party claims arising from road accidents.
In their feedback to the Government on the draft of the Motor Vehicles Act, the insurers have sought this cap because of high losses arising from third-party motor insurance claims, which are in excess of ₹12,000 crore, according to industry estimates.
Present provisions allow unlimited liability as decided by courts. In case of road accidents, compensation as high as ₹20-25 crore have been awarded.
For vehicle owners who want to buy additional cover, an option for additional liability limit cover has been proposed. This additional cover will be for over and above the basic ₹10 lakh policy.
Insurers feel a limited liability cap will not just help insurers in bringing down huge losses, but also in bringing down third-party motor insurance rates.
“Third-party motor insurance rates have been rising annually at the rate of almost 25 per cent, especially for three-wheelers which end up paying ₹6,000 for an annual policy.
Cap on liability“A cap on liability will ensure that insurers can estimate the losses and look at appropriate pricing of policies. This is currently difficult to ascertain due to the unlimited liability,” said Vijay Kumar, chief technical officer (motor insurance), Bajaj Allianz General Insurance.
The two components of motor insurance in India are covering third-party damage in terms of property or life, and covering damage to one’s own vehicle.
Third-party coverage is mandatory by law for both commercial and personal vehicles, and the premium in this segment is decided by the Insurance Regulatory and Development Authority.
The draft of the Motor Vehicles Act has provided for penalties as steep as ₹3 lakh along with a minimum seven-year imprisonment for death of a child in certain circumstances, and proposes higher fines for driving violations and driving without an insurance policy.
Sanjay Datta, Chief (Underwriting & Claims), ICICI Lombard General Insurance, said, “The overarching theme of the new Motor Vehicles draft focuses on road safety and imposes strict penalties, which will act as a deterrent for violation of road safety norms and help bring down the overall number of road accidents. Consequently, the motor vehicles claims will also see a fall.”
However, insurers feel that the draft has not defined a limit on the liability for a claim in the case of a road accident, limits of jurisdiction, and time-limit for filing a claim.
G Srinivasan, Chairman and Managing Director, New India Assurance, said that if these three major suggestions are implemented, it will help solve the issue of high losses for the industry.
Kumar said that the implementation of a time-limit for filing a claim will help insurers assess the claims faster and reduce litigation, which will result in faster settlement of claims.
R Chandrasekaran, Secretary General of the General Insurance Council, said the Council has submitted its recommendations to the Government on the draft Motor Vehicles Act.