The Insurance Regulatory and Development Authority of India (IRDAI) has directed insurers to offer only three-year motor third-party covers for new cars and five-year policies for new two-wheelers. This is in line with the Supreme Court’s July order that no new vehicle will be sold without the mandatory third-party insurance cover for the prescribed period. So, from September 1, people purchasing brand new four-wheeler and two-wheeler vehicles will have to cough up 3 and 5 years’ premium, respectively, for third-party insurance upfront.
Currently, vehicle owners are required to purchase 1-year third-party insurance cover and this is renewed annually. As per different studies, of the 18 crore registered vehicles, only 6 crore or 33% are insured.
For cars, annual third-party insurance premium at present starts from Rs 1,850 (less than 1,000 cc) to Rs 7,890 (exceeding 1500 cc). For two-wheelers, it starts at Rs 427 (less than 75 cc) to Rs 2,323 (over 350 cc).
In the event of a car accident, there is typically a first party (the insured person or policyholder), the second party (insurance company) and the third party (the person who claims for the damages caused by the first party). In an event where an insured person with a third party insurance policy is held legally liable for injuries or damage was done to a third party, then his/her insurance company indemnifies the insured person.
The introduction of mandatory long-term policies for new vehicles will go a long way in addressing the problem of under-insurance of motor vehicles. Today, as is widely estimated, around 60% of 2 wheelers and 35% – 40% of 4 wheelers are being driven on Indian roads without any motor insurance cover.
“At ICICI Lombard, we had already initiated steps to address this problem by pioneering two-wheeler policies of up to three years tenure in 2016. With the launch of mandatory long-term motor policies covering new 2 wheeler and 4 wheelers, we are sure that motor insurance penetration levels will rise further in the coming years. We are already geared up for this path-breaking change and will start offering these long-term policies to our new vehicle customers effective September 1, 2018,” says Sanjeev Mantri, executive director, ICICI Lombard General Insurance.
Poor compliance of third-party insurance of vehicles puts all road users, including those walking or waiting, at risk. More than 90 per cent of road deaths is attributed to rash and negligent driving. National Crime Research Bureau (NCRB) statistics reveal 1.35 lakh road accidents happened due to delinquent driving.
The driver’s fault was responsible for over 80 per cent of these fatalities. Since victims of road accidents are mainly compensated from the accumulated third-party insurance premium collected from vehicles.