While both buyers and sellers of two-wheelers and cars are still grappling with the impact of recent court rulings on insurance, the impact is a lot more serious than most imagine. To begin with, the Supreme Court mandated that the third-party insurance cover for new two-wheelers and cars will be for five and three years, respectively, from September 1. Secondly, based on a October 2017 directive by Madras High Court which ordered insurance regulator IRDAI to enhance the compulsory personal accident (CPA) cover for owner-driver from the existing `1 lakh to at least `15 lakh, the regulator issued a circular on September 20 to implement the court’s directive.
The reason for the Supreme Court’s directive, it appears, is to ensure that more vehicles have a third-party insurance cover; right now, it appears, over half the vehicles plying on the road don’t have this cover, so when accidents happen, those affected find it difficult to get compensation. The SC’s solution, however, is at best partial. First, it applies just to new vehicles; what happens to the old ones? Two, if the violation is so rampant, who will ensure that, after the initial three or five years are up, the third-party cover will be renewed? Since all vehicles are registered with transport authorities, surely it would be easier to link databases with insurance companies and deregister vehicles that don’t have the cover? And local police stations can be asked to impound vehicles that are without a cover.
An even greater problem arises from the fact that third-party covers have a price-control; that is, insurance firms have to sell them to everyone and at an IRDAI-determined premium. So, if a three or five year policy is issued, how do the insurers get the higher premium if this is raised by IRDAI during this period? More importantly, every policy has to be sold based on an assessment of risk parameters. If person A drives better than person B, her third-party cover should cost less. But since this policy is not “de-tariffed”, insurance firms can lose large amounts as even accident-prone drivers have to be insured, and at the same price.
And while the Madras High Court’s decision was to “add to some succour or solace to the victims of road accidents, who are the owner of the vehicle, who may incidentally sustain bodily injury or death”, there is no rationale for fixing this at `15 lakh since there is no such minimum insurance for other accidents or deaths. Also, at `750, the premium is too steep. In the Pradhan Mantri Suraksha Bima Yojana, non-life insurance companies are providing personal accident cover of `2 lakh for a premium of `12 while, in this case, it is a `50 premium for a cover of `1 lakh.