The Supreme Court has made two-year third-party insurance compulsory for cars and five-year third-party insurance compulsory for bikes. Third party insurance covers the medical expenses and costs incurred by someone who gets injured or affected in an accident with you. In other words, your insurance policy provides cover to the ‘other party’ in an accident and vice versa. At present, you can buy it together with insurance for your own vehicle or you can buy it separately.
Third party insurance is already a legal requirement under the Motor Vehicles Act, 1988 but is currently bought in the form of one-year policies. However many drivers fail to renew third-party insurance out of sheer forgetfulness, apathy or because they can’t afford it. In a recent interview with RupeeIQ, Tapan Singhel, CEO of Bajaj Allianz General Insurance stated that only 20% of the two-wheelers plying on Indian roads are insured. It is this problem that the Supreme Court has sought to address through its judgement.
The rates for third party insurance premiums are set by the insurance sector regulator, the IRDA. They are revised every year. You can have a look at the rates for FY 2018-19, here.
Currently, there are virtually no multi-year third-party insurance policies for cars. For two-wheelers, policies up to only three years are available. As a result, there is some confusion in the industry about how to implement the Supreme Court judgment. The IRDA may also have to notify the rates for multi-year policies before such policies are made available.
Reacting to the judgment, Sasikumar Adidamu, Chief Technical Officer, Bajaj Allianz General Insurance said, “It’s a positive step in the right direction, we support and welcome this move. From the customer’s perspective, there will be stability in the price as they know what price they will be paying for the next 3/5 years, unlike the annual policies. From the perspective of the insurance company, it would help us increase the penetration of insurance which would reflect on our portfolio. More the penetration, the performance of the portfolio will be balanced.
However, there are a couple of challenges which needs to be catered to. Firstly, renewal of this policy after completion of 3/5 years. Renewals are a challenge mainly because of lack of awareness amongst the customers, especially two-wheelers. Hence, we need to increase the awareness between them so that they continue to be covered even after the completion of 3-5 years. Secondly, the pricing of a long-term product is a bit challenging compared to an annual product since inflation for such long-term period needs to be considered. The regulator will be determining the prices and the industry will work with them to arrive at proper pricing.”
The Supreme Court has laid down a deadline of September 1st for the implementation of its judgment. New vehicles sold after this date will have to comply with the court’s ruling.