Vehicle owners in the country — numbering about 21 crore at last count — will run the risk of having to pay accident claims above R10 lakh out of their pockets, if a law in the making comes into force.
The Motor Vehicles (Amendment) Bill, 2016, introduced in the Lok Sabha on August 9, proposes to cap the liability of insurance companies from mishaps involving vehicles at R10 lakh in case of accidental deaths and R5 lakh in case of grievous injuries.
The relevant Act at present provides for no such ceilings on compensation for deaths or bodily injuries.
Although motor accident claims exceed the proposed limit in a small fraction of cases, analysts said given that the claim amounts are generally on the rise, the new provision could potentially hit individuals and firms.
Mandatory motor third-party (TP) insurance premium grew 19% on-year to R21,242 crore in FY16. These premia typically go up 10-15% every year to reduce the burden on insures. As a result, the claims to premium ratio is now 140%, much lower than a few years ago, but insurance companies would want it to come down further.
Analysts say a cap on claims could put downward pressure on premia and bring down insurers’ own reinsurance costs.
“If one looks at the distribution of claims, most of them are less than R10 lakh. So the argument for the new provision in the Bill could be that since most of the claims are of lower amounts, if a cap on claims is imposed, it will help reduce premiums for TP motor covers,” said Shashwat Sharma, partner, KPMG India. Unlimited liability has been an irritant as far as insurers are concerned, Sharma added.
But from the point of view of ordinary people, the proposed policy is indeed a cause for concern. If the legal heirs of an accident victim claim compensation before a motor accidents case tribunal or a court and get an award of, say, Rs 20 lakh, the insurance firm would only pay Rs 10 lakh and the balance Rs 10 lakh would have to be arranged for by the owner of the vehicle.
“The idea behind insurance is the inability of the insured to foot a hefty bill if something untoward happens. This provision will be a surest way of accumulating motor vehicle accident cases in courts,” said an industry analyst, who did not wish to be identified.
According to a government estimate, every year 5 lakh road accidents are reported in the country in which 1.5 lakh people lose their lives. “Clearly, the focus of the government should be to reduce road accidents,” the analyst said.
The Bill also mandates that the central government prescribe a base premium and the liability of an insurer in relation to such premium for an insurance policy in consultation with the Insurance Regulatory and Development Authority. Currently, Irda fixes the motor TP insurance tariff.