Insurer's liability in third party motor accidents to be limited at Rs 15 lakh

New Motor Vehicles Act allows a victim to claim any amount in third-party accidents and if the insurer refuses to pay, claimant can approach the court

Those seeking a large cover and willing to shell out a hefty premium might now get unlimited liability insurance from general insurance companies.

According to the Road Transport and Safety Bill, 2014, the maximum liability for compensation to a victim by the insurer linked to the regulated minimum premium shall be a sum of Rs 15 lakh. In its revised draft, the Bill says any policy of insurance issued before the commencement of this Act and not conforming to it shall be amended to conform within a period of three months of the Act being notified.

The Bill will be tabled in the Parliament in the next few days.

All regular covers would have a limit of compensation from insurers to be fixed at Rs 15 lakh. If any individual operating in a high-risk area or accident-prone zone does not wish to have a cap on the liability, will have the option to choose from an array of covers that would be available in the market.

Since the payouts in these cases would be high, the premiums charged would be automatically higher than the regular covers for limited liability.

According to current norms of the Motor Vehicles Act, there is no limit on the liability of insurers in motor third-party accidents. Due to this, a victim can claim any amount in these cases and if the insurer refuses to pay, they can approach the court.

Insurance sector estimates suggest that on an average, there is a 15-20 per cent increase in the quantum of compensation awarded by courts every year.

Meanwhile, insurers have said that third-party motor insurance policies with an unlimited liability cover will soon be available in the market. Sanjay Datta, head of underwriting and claims at ICICI Lombard General Insurance explained that having a limited liability is a step in the right direction because most of the claims are usually lower than the maximum amount stipulated by the Bill.

“If an owner seeks a cover with a larger limit, they can choose from the unlimited liability covers that would be available in the market,” he said.

Under the revised draft, the penalty for driving a vehicle without a valid insurance policy has become more stringent with penalties ranging from Rs 10,000-25,000 for different categories of vehicles. It also includes imprisonment for 6 months and impounding of vehicle for six months as a deterrent against driving without valid third party insurance which is mandatory for all motor vehicles.

Further, it has clarified that the death of or bodily injury to any person or damage to any property of a third party shall be deemed to have been caused by or to have arisen out of, the use of a vehicle in a public place. This is notwithstanding that the person who is dead or injured or the property which is damaged was not in a public place at the time of the crash, if the act or omission which led to the crash occurred in a public place.

Currently, combined ratios in the motor insurance segment stand at 140-150 per cent, owing to losses in the third party motor segment and high claims from commercial vehicles.

For the April to December 2014 period, non-life insurers collected Rs 27,132.65 crore of motor premiums, of which Rs 14,251.60 came from the motor own damage segment, while Rs 12,881.58 crore came from the motor third party insurance segment.

Motor third party insurance that covers the liability of a vehicle owner to a third party in case of an accident, is mandatory while the 'own-damage' motor segment covers losses to self, is optional.