The Road Transport Ministry has suggested capping the liability of general insurers at ₹15 lakh for road accidents in the draft Road Transport and Safety Bill. This comes in the backdrop of insurers facing huge losses in third party motor insurance.

Currently, the Motor Vehicles Act, 1988 empowers the Motor Accident Claim Tribunal (MACT) to decide on the compensation insurers need to pay on third party motor accident claims — on the basis of age, income, health, dependants of the accident victim — without a cap on liability.

In the latest version of the Bill, the Ministry says that “provided that the maximum liability for compensation to a victim by the insurer linked to the regulated minimum premium shall be a sum of ₹15 lakh or such higher amount as may be prescribed by the Central Government from time to time.” General insurers have been totting up losses of around ₹12,000 crore a year on third party motor insurance. Third-party motor insurance coverage is mandatory by law and the premium is decided by the Insurance Regulatory and Development Authority of India.

International practice

KG Krishnamoorthy Rao, MD and CEO of Future Generali Insurance, said, “The cap is necessary as unlimited liability with fixed pricing is very difficult to price.

“Insurers can come up with additional covers for higher limits which is a practice prevalent internationally in most countries. It can also moderate premium increases in the segment to some extent.”

However, the move is expected to be opposed by transporters’ associations as they are likely to incur higher liability. SP Singh, Senior Fellow at Indian Foundation of Transport Research and Training, said that the proposal (to cap the liability) should be removed from the Bill as it is unfair to road accident victims.

The Road Transport and Safety Bill is expected to be taken up approval in the current Budget session of Parliament.

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