The Finance Ministry has initiated a Bill to separate motor insurance from The Motor Vehicle Act, 1988. A new law has been a long-pending demand of insurers.
“The administrative control of law relating to road accident compensation and insurance of motorised vehicles shall now be with the Ministry of Finance. Hence, Section 140 to Section 176 of the M V Act, 1988 will be rechristened as The Motor Vehicles Insurance and Compensation Act, 2011 and the same will be taken out of the existing Motor Vehicle Act,1988,” the draft said.
“It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.”
The draft put forth by the Finance Ministry, proposes a cap of Rs 10 lakh on third-party compensation or on the liability arising out of death or body injury caused to a third party by any vehicle on road. The draft also says that claims have to be filed within three years of an accident.
Will help curb losses
Experts in the insurance industry say that these measures will help in curbing the losses for insurers. It is also expected to help in speedy settlement of claims by insurers.
“Sixty per cent of losses in the general insurance industry is due to the deficiency of third party premiums. This proposal will limit exposure in line with air travel and rail travel,” said Mr Amarnath Ananthanarayanan, MD and CEO, Bharti Axa General Insurance
“It is a comprehensive draft and it will be beneficial to insurers and consumers as well. It will expedite claims settlement and reduce litigation costs,” said a legal head of a private general insurance company.
Bleeding portfolio
The third party commercial vehicle portfolio is a bleeding portfolio, where the general insurance industry is faced with a loss of Rs 10,000 crore in the current financial year, as the insurance regulator, IRDA, increased the provisioning requirement for the commercial third-party motor pool to 163-213 per cent from 153 per cent.
The claims ratios in this segment is estimated at 150 per cent of the total premiums collected.
Insurers have been demanding a cap in the liability amount and time-limit to solve the problem of high claims-ratio as, at present, there is no such limit.