The Centre plans to go ahead and fix a limit on the liability arising from road accidents in a move that will come as a relief to insurers facing heavy losses from third-party motor insurance.
The Centre first mooted the idea in the draft Road Transport Safety Bill released last year, where it mentioned the need to fix the maximum liability limit in consultation with the insurance regulator and proposed steep penalties and fines for driving violations. After stiff opposition from transporter associations, the latest draft of the Bill released recently has moderated the penalties for driving violations but retained the maximum liability provision. It also proposes that vehicle owners buy additional insurance cover to protect themselves from additional liability.
Current provisions allow unlimited liability as decided by courts. In the case of road accidents, compensation as high as ₹50 crore has been awarded, depending on parameters such as income and future earnings potential of the victim.
“Having a maximum liability limit in third party motor insurance will help moderate the premium increases,” said Vijay Kumar, Chief Technical Officer (Motor Insurance), Bajaj Allianz General Insurance, pointing out that while the value of claims rose by about 25 per cent every year, the increase in premium fixed by the regulator rose only by about 10 per cent.
Insurers are also seeking a 40 per cent increase in third party motor insurance premiums this year as they have been bleeding with a claims ratio of around 120 per cent and estimated losses of ₹12,000 crore.
Limiting time provisionAmitabh Jain, Head — Motor Underwriting and Claims, ICICI Lombard, said limiting the time-period in reporting the claim was an important provision in the Bill, as otherwise it not only increases the chances of fraudulent claims but insurers also cannot estimate the liabilities that they might face in the next few years.
Third-party motor insurance coverage is mandatory by law and the premium is decided by the Insurance Regulatory and Development Authority.
Madhukar Sinha, National Head — Personal Lines at Tata AIG, said restricting the liability will ensure that vehicle owners are more concerned about their driving habits, helping reduce the number of accidents.
A possible reduction in insurance premiums will also help address the issue of the large number of uninsured vehicles, said Mukesh Kumar, Executive Director, HDFC ERGO General Insurance.