FinMin plans ordinance to end insurers' woes on third party claims

Says will table the ordinance once the Motor Vehicles (Amendment) Bill is passed by the Lok Sabha

As losses of general insurance companies mount due to obligatory third party insurance on motor vehicles, the finance ministry is planning to move an ordinance in Parliament for a separate Motor Vehicle Insurance & Compensation Bill.

At present, the Motor Vehicles (Amendment) Bill, 2012 prescribes the conditions for insurance in case of death or injury to a third person in a road accident.

The Rajya Sabha has already cleared the Motor Vehicles (Amendment) Bill administered by the Roads ministry. It is expected to be taken up by the Lok Sabha in the next session of Parliament.

The finance ministry has sought law ministry’s opinion on whether it could introduce an ordinance for a separate legislation soon after the Motor Vehicles (Amendment) Bill is passed by Parliament.

 

“As long as the Motor Vehicle legislation is there in Parliament we cannot introduce our Bill. Once it is cleared by the Lok Sabha, we will bring in an ordinance for a separate legislation and when Parliament convenes next, the Bill will be tabled,” a finance ministry official told Business Standard.  

Third party motor insurance protects the vehicle owner from any financial liability in case of death or injury to a third person.

Insurance companies, which are bound by law to settle the claims with no cap on liability, paid out 45% more than the premium on account of claims under the third party motor pool last year. The new law is expected to propose a cap on third party motor insurance claims.

Insurance companies are thus caught in a bind as they cannot even increase the premium on such policies.

The Insurance Regulatory Development Authority (Irda) had issued an order in March to increase premiums on third party motor insurance by 6-40%. Soon after, the transporters’ lobby moved Kolkata High Court against the increase in premium and the Irda’s order was quashed.

The issue is likely to be taken up in a meeting between general insurance companies and Finance Minister P Chidambaram later this month.

“Companies are saying de-tariff the premium. Except Scandinavian countries no other country has it. State-run general insurers are bleeding and the matter needs to be resolved,” said an official.

The annual liability on account of third party motor insurance is Rs 10,000 crore, with average third party claim per accidental death and injury coming to Rs 3 lakh and Rs 1 lakh, respectively.

Public sector general insurers are hit harder as private insurance companies avoid writing such policies due to high claim ratio, particularly in the commercial vehicle space.

Earlier this year, after a meeting of insurers with then Finance Minister Pranab Mukherjee, the finance ministry had discussed the issue with the Ministry of Road Transport & Highways. An option to take off motor insurance from the Motor Vehicles (Amendment) Bill was considered that time too, but since the law proposing cap on liability was already in Parliament, the finance ministry did not move forward.

The Bill proposed a cap of Rs 10 lakh on third party compensation in case of death of a working person. It suggested a compensation of Rs 50,000 for grievous injury and Rs 20,000 for non-grievous injury.