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This article was first published 4 years ago  » Getahead » 8 things you must know about motor insurance

8 things you must know about motor insurance

By Neeraj Prakash
February 20, 2020 09:00 IST
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Neeraj Prakash, MD, Shriram General Insurance, explains how new measures proposed in the Motor Vehicles Act can smoothen the lives of the insured and insurer and how the government plans to make more vehicles owners buy insurance.

It is well recognised that insurance is a push product. Increasing penetration rates necessitate improving accessibility of insurance products. In India, all vehicles are mandated to have third party insurance, but a large chunk of vehicles are uninsured. India records the highest road crash fatalities, and is on a mission to lower accidents and deaths in the country.

About 89 per cent of vehicles in urban areas are insured, while 11 per cent of vehicles in rural areas are insured.

Uninsured vehicle-owners to get alerts

Owners of uninsured vehicles in states such as Telangana, Karnataka, Odisha and Rajasthan, have either started getting text messages or will soon get a text message on their mobile phones from insurance statistics body Insurance Information Bureau of India (IIBI) nudging them to insure their vehicles.


This text message is different from the reminder that vehicle owners get from their insurance companies at present.

This was made possible after the insurance regulator asked states to share their vehicle database with the IIBI. As a result, data regarding the uninsured vehicles could be sieved out from the insured vehicles, and messages could be sent to the phone numbers of owners of uninsured vehicles.

Underinsured motor vehicle in India

Motor insurance, with an industry premium of about Rs 65,000 crore, is the largest selling general insurance product. New business insurance sales involve the automobile manufacturer (OEM), dealers, intermediaries, insurers and customers. This sequence also often reflects the priorities in the sales process. The insurance cost in proportion to the vehicle is very small.

A car costing Rs 10 lakh will have an insurance premium of about Rs 35,000, or just 3.5 per cent. And, the dealer convinces buyers that their insurance is the best.

Much regulatory effort has gone into ensuring that buyers get a fair deal. The regulator has taken several large insurance distributors to task and collectively fined them over the new car insurance.

Determining the insurance cost at a dealer can be difficult because the premium is sometimes bundled into the overall purchase cost. This is illegal. The insurance premium has to be separately stated.

Vehicle buyers should look at this and check the terms outside the dealer network before buying motor insurance.

Long-term insurance

In 2018, the Supreme Court had made two-wheeler insurance compulsory for five years and four wheeler insurance for three years for new vehicles. As far as purchase of new vehicles are concerned, there is a provision of the fine amounting to Rs 2,000, under the Motor Vehicles Act, in case of any default.

Under the third-party insurance provision, the responsibility of compensating an accident victim shifts from vehicle owner to the insurance company.

Floater motor policy

Insurance companies are planning to test a motor floater policy soon. Their product is an innovative app-based floater plan that will allow policyholders to cover any damage to their vehicles based on usage. The policy will cover multiple vehicles. Premiums will be charged as per usage. So the customer has the flexibility of adding and deleting vehicles as required on the app.

The cover can be switched on or off as per requirement. The sum insured-based floater plan will cover all the vehicles owned by a customer. The policy will help to optimise the premium and the sum insured.

All the benefits including no-claim bonus and cancellation shall be made available to a customer, like in the case of any typical motor insurance own damage product, both at the time of entry and exit.

Pay as you drive

Insurers have taken the pay-as-you-consume model seriously and designed products that will make policyholders pay based on the kilometres travelled. Companies are also considering vehicle mileage during the policy period as a parameter. Lower the mileage, lower the probability of an accident. These products are already available globally.

Current market practices don’t incentivise policyholders with lower-than-average vehicle usage, but that may change now. This policy would cover their vehicle at a lower premium due to their lighter driving behaviour. And if during the policy period, they do exceed the declared light usage and have a claim then additional premium will be adjusted in their claim amount.

Now government will fix third-party insurance premium

In a first, the road transport ministry will notify the third-party insurance premium for motor vehicles in consultation with the insurance regulator, IRDAI.

The change was introduced in the Motor Vehicle Act to ensure that the consumer's interest is protected and there is some check on the influence of insurance firms to increase the premium for mandatory third-party insurance.

Currently, IRDAI has the authority to notify the TP premium amount for different categories of vehicles.

FASTags to be mandatory for vehicle insurance

According to IRDAI, about 40 per cent of vehicles in the country are not under the ambit of insurance.

Commercial vehicles are highly compliant, at 80 per cent, while only 60 per cent of private four-wheelers in the country are insured. Nearly 80 per cent of two-wheelers don’t have the insurance cover.

The government has mandated electronic toll collection via FASTags across national highways. Stressing on the need to bring more vehicles under the ambit of insurance, the transport ministry wants FASTags to be made mandatory for obtaining vehicle insurance. There should be a rule that along with other documents, FASTags should be mandatory for requiring vehicle insurance.

India is the world capital of road accidents

According to road ministry data, India is among one of the countries with highest number of road accident related deaths. There were 1, 51,417 deaths due to road accidents in 2018, an increase of 2.3 per cent from 2017.

Incidentally, in 2018, 31 per cent of death due to road accident was because of two-wheelers.

Several countries such as Canada, Australia, USA, South Africa and the UK are following the practice of insuring infrastructure projects. The transport ministry is also setting up a Motor Vehicle Accident Fund, which will fund the amount for compensation for hit and run cases. The fund will also be used for medical treatment of accident victims.

Vehicles without insurance have been a major cause of concern. India’s road statistics presents a grim picture. Commercial and government vehicles are the biggest offenders when it comes to both insurance and accidents.

IRDAI should get support from the transport ministry in making sure all vehicles are insured.

Illustration: Dominic Xavier/

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Neeraj Prakash