ANALYSIS OF MOTOR VEHICLE INSURANCE POLICIES IN INDIA

NATIONAL LAW UNIVERSITY ODISHA

LAW OF INSURANCE

SUBMITTED TO:

MS.DIVYA SINGH RATHOR

SUBMITTED BY:

IMLIKABA JAMIR (18/BALLB/042)

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Contents
1. Introduction…………………………………………………………………………..………………………………………………………3

2. Objectives…………………………………………………………………………..………………………………………………………5

3. Hypothesis…………………………………………………………………………..………………………………………………………5

4. Research questions…………………………………………………………………………..…………………………………………5

5. Research methodology…………………………………………………………………………..…………………………….………5

6. Brief look at the scene of Motor Vehicle Insurance in India…………………………………………………6

7. Vehicle Insurance coverage that are offered by motor insurance in……………………………………6

8. Analysis of Insurance provided based on vehicle classification…………………………………………9

9. Analysis of Motor vehicle Insurance Policies in India…………………………………………………………11

10. Conclusion……………………………………………………………………………………………………………………………14

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 Introduction

In recent years, one of the most rapidly growing sectors in India is Insurance and due to recent
changes in the market conditions, there have been several favorable changes that have been made
to it. Due to the non-stop rise in population, there has been a rise in the number of consumers for
many commodities including motor vehicles, meaning that there are a lot more motor vehicles in
India. This makes it an essential need to have some forms of insurance for each and every one of
these motor vehicles that are being driven on Indian roads. When we talk about the business of
insurance, we can see that motor contributes a large part to the business, meaning that if an
insurance company were to seek to make a name for themselves in the market or improve their
reputation in the corporate sector, then the popularity of their motor insurance policy would
definitely play a major factor in determining their value in the public opinion which will result in
their overall value rising in the market as well. As mentioned in the lines above, it has been
noticed that there has been a significant rise in the number of automobiles being purchased
leading to a “boom” in the automobile sector, leading to different international corporations
investing in these automobile industries that operate in our country. However, the rise in the
number of automobiles being driven on the roads these days have led to a rise in accidents,
making the need for motor insurance much more immediate and imperative than previous years.

It has become mandatory for any motor vehicle operating within the country to be insured
irrespective of the type (commercial or personal) or how long the vehicle has been used for. It
has been made mandatory because of the very obvious and apparent reason that is present before
our very eyes each day with the congestion and cramped state of our roads. Even though the rise
on the number of motor vehicle population in the country may be a statement of pride for some,
and rightfully so as it means that the current trajectory of the country is heading towards the
future and further development in all sectors, it is alarming to see that less than half the
population that own vehicles are not well trained enough to operate such machinery that travel at
such high speeds that sometimes lead to near death altercations or even death.

A motor vehicle policy within India, is a must for all the owners of automobiles as it protects
them from being legally implicated hence freeing them from certain legal liabilities that may
present themselves in the event of a mishap or accident of some sort and it also works in
preventing such incidents from taking place altogether by regulating certain aspects of either the

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automobiles or the methods of operating them, therefore eliminating the danger before they have
a chance to arise. The Motor Vehicle Act 19881 regulates and governs the motor vehicle
insurance as well as all the road and automobile regulations within the country.

In this project, we will analyze the motor vehicle insurance policies in India by firstly
establishing an understanding the motor vehicle insurance and several other relating factors as
well as the insurance policies that are most commonly seen being implemented.

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Motor Vehicle Act 1988

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 Objectives

This paper has been made with the sole purpose of analyzing the motor vehicle insurance policies in India
by taking a look at the topic of motor insurance to get a better understanding of the topic

Hypothesis

If there is any person who owns or drives a car or motorbike, that person knows that they need to have
their vehicles insured as long as they drive their vehicles on Indian soil, however not many of these
people know the full extent of the benefits of the insurance policies and the coverage provided under
them, thus I feel that it is very important to have – at least a rudimentary or basic knowledge of the
policies provided by insurance companies or better yet, a solid understanding of their schemes and the
liabilities that are covered by said policies

Research questions

1. What is motor vehicle insurance?

2. What types of vehicles are covered under motor vehicle insurance?
3. What are the liabilities covered under such policies

Research methodology

Duly efforts have been made to have a qualitative research on the topic.

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 Brief look at the scene of Motor Vehicle Insurance in India

The current state of motor vehicle insurance in India is such that it is currently on a great track
with a steady momentum due to the current state of the automobile industry within the country.
In earlier years prior to the introduction of motor vehicle insurance in India, those who were
either injured, dead or suffering heavy losses due to loss of property resulting from negligence
could not seek any form of aid or compensation either through financial or legal assistance due to
the absence of motor vehicle insurance.

To create a state of stability and security for those affected by financial or monetary hardships,
the Motor Vehicles Act 1939 was passed which dealt with making third part insurance
compulsory for all motor vehicle owners. This Act was later revised into the Motor Vehicle Act,
1988 which is followed to this day with few amendments being made to it every not and then
whenever the need arises to do so. The law passed on making third party insurance mandatory
for all persons owning a vehicle in India was the same to that of the United Kingdom where
making third party insurance compulsory became a law in 1949.

In India, the motor vehicle Insurance operates under the guidance and regulatory power of
General Insurance Corporation in association with Public Insurance and the Private Insurance
Companies. The guidance of IRDA established in 1999 is mandatory for any and all insurance
dealing with motor vehicles. During the period of the early 2000s between 2000 to 2009, there
were altogether about 18 motor vehicle companies which were registered with IRDA comprising
of 4 public Insurance companies and 14 private insurance companies.

Vehicle Insurance coverage that are offered by motor insurance in India

Basically, there are two different insurance coverage that are established within India which are:

a) Third party vehicle insurance - This insurance coverage deals with property damage as well
as personal damage or injury. This means that individuals are insured against legal liabilities that
may arise due to the damages caused by an accident or mishap where a third party suffered some
damage which was caused by your vehicle. In this insurance coverage are basically insured
against death or injury caused by a personal vehicle to pedestrians or to other passengers of other
vehicle on the road. Private vehicle passengers and motorcycle passengers are also covered under

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the scheme. Third party insurance cover for personal injury also includes the person who is also
insured against death or injury to other vehicle’s driver, conductor, helper or any other person
who is associated with the operation of the vehicle.

b) Full cover and Comprehensive Vehicle Insurance: Cover here implies that the rider and
vehicle is insured against loss or damage of the vehicle along with a personal accident cover for
individual owner while the person is driving, travelling, mounting or even dismounting from the
vehicle. Again, the vehicle is insured against all kinds of calamities be it natural calamities or
disasters such as floods, earthquakes, typhoons, hurricanes, storms, landslides, rock slides and
many others or man-made disasters or calamities such as burglaries, theft, accidents caused due
to negligence, malicious acts, terrorist activities, riots and even strikes. The vehicle insurance
also has a damage insurance coverage under the comprehensive coverage policy, wherein
damage caused to oneself is covered if its insured in the policy which could include theft of the
automobile- either car or motorcycle. The comprehensive cover also provides zero depreciation
cover which offers full claim coverage on the value of parts that are replaced in the event of
partial repairable damage, without the deduction for the depreciation of any vehicle asset.

Apart from these two which are prominently seen in most cases of motor insurance, the
following are other types of motor vehicle insurance policies and their coverage-

a) Pay as You Drive: In this system of insurance, an insured driver must pay for every kilometer
that he has driven with his automobile and the premium shall be changed accordingly. By
employing the assistance of the Global positioning System better known as GPS device, the
premium can be calculated by the insurance company for each journey made by the insured
driver. The current position, time, directions and speed of the automobile are determined through
signals that are sent to the GPS via a black box that is installed into the car, after the
determination of said factors; the insured is sent a monthly bill that is calculated according to the
vehicle’s usage.

b) Family Auto Cover: This motor vehicle cover policy is meant strictly for those individuals
who have insured public carrier or passenger vehicles such as jeeps, station wagons, pickup
trucks etc that have a load of either 680 kg or 1500 lbs and no less which are not primarily used

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for the purpose of business or as farm machinery. Injuries caused to the body or damage caused
to another person’s property is covered under this as it is what is known as a package policy.
Apart from these it also covers the damage caused to the policyholder’s vehicle or injuries that
may have been suffered by him/her. In current times, this insurance policy no longer exists as it
has been replaced by another known as the personal automobile insurance .

c) Roadside assistance: This motor vehicle assistance policy is very commonly opted out of by
insurance policyholders due to the unlikeliness of the condition through which the insurance
money may be paid by the insurance company. It depends solely on an automobile to break
down for whatever reason whether it is for engine reasons, problems related to electronics,
chassis damage, wheel alignment, axle fitting or some other problem which may cause an
automobile to stop functioning entirely. However it is plausible when we take into account that
an automobile may break down at any time and any place irrespective of the age or condition of
the vehicle. The main reason why it is not preferred by many who seed to insure their vehicles is
that it simply costs too much as the likeliness of ever needing that sort of insurance is relatively
low when compared to coverage provided by conventional policies.

d) Garage Cash Cover: This type of coverage deals with providing the policyholder or insured
with the means to travel on a daily basis by providing a certain amount as allowance for their
daily commute during the period of time that the insured vehicle is being repaired in a garage
because of the damage caused by an accident.

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 Analysis of Insurance provided based on vehicle classification

There are three types of Vehicle insurance policies that are mainly seen operating within India;
they are Motor Car Insurance, Two Wheelers Insurance and Commercial Vehicles Insurance. To
understand these three, their descriptions are given below:

a) Motor Car Insurance: The fastest growing segment within the Insurance sector is the Motor
Car Insurance, chiefly because of the law that makes the insuring of brand new cars mandatory.
The leading Insurance Companies are working hand in hand with large car manufacturing
companies in order to ensure that their customers are able to receive their insurance at a quick
rate, making it more convenient for the customers and more inviting. Car insurance covers
damages that are caused due to incidents involving lightning, fire, road accidents or mishaps,
earth-quake, hurricane, terrorist attacks, theft, explosion, miscreants, malicious activities or the
third party’s claims and damages which include the liabilities for the third party’s death, injury or
damages caused to the property or vehicle of the third party). After the payment of additional
premium which may be specified by the company, damages or loss caused to electronic parts of
the car such as lights and other electronic accessories including air bags, powered operational
instruments or internal electrical work are covered by the policy by providing zero depreciation
insurance policies for premium cars.

b) Two wheelers Insurance: This type of insurance is another very popular type of insurance
among policyholders in India due to the nature of its coverage and it is also common knowledge
that Indians have long shared an affinity for two wheeler motor vehicles due to their convenient
nature and dependability, not to mention their economic value for working class people whose
jobs require them to travel short distances at regular intervals. The Indian Motor Tariff governs
the two wheelers Insurance and under its coverage it provides for protection from various natural
as well as man-made disasters and calamities such as Fire, landslides, storms, floods, hurricanes,
earthquakes, burglary, theft, riots etc. Damages caused to the vehicle during transit either by
road, waterways, air travel or railways are also covered. The coverage extends to the passengers
as well as the driver of the two wheeler vehicle. It also provides protection form legal liability
that may arise due to the death, injury or damage caused to the property of the third party due to
accidents or mishaps.

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c) Commercial Vehicle Insurance: All types of vehicles that are not being used for the purpose
of personal use are covered under this Insurance policy. Vehicles under this coverage may vary
from busses, heavy commercial lorry or trucks, light vehicles used for commercial goods, multi-
purpose vans or trucks, farming/ agricultural vehicles, ambulances etc. The make and model of
the commercial vehicle are taken into account while determining the premium, along with these;
the year of manufacture, place of registration, current showroom price and whether the insurer is
corporate or individual are also taken into count while determining the premium. As it was
mentioned in other Insurance policies in the earlier sections, even here the companies that
manufacture automobiles work in collaboration with the Insurance Companies to work out
different methods and schemes in order to make it easier and more accessible for customers to
obtain safe and easy insurance policies along with the claim procedures for accidents, theft and
liabilities in the claim procedure (depending on the insurance) which is issued by the company
that insures the vehicle in India under the regulation of the IRDA and its provisions.

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 Analysis of Motor vehicle Insurance Policies in India

The Motor Insurance business in India is governed by the All India Motor Tariff and according
to them; there are two forms which are used by all classed of vehicles in India. These forms are
called Form A and Form B. The Act policy or Act only policy which is also known as Form A
covers act liability, which is an essential and compulsory requirement of the Motor Vehicle Act,
1988. They do not allow the operation of any sort of vehicle on Indian soil without this minimum
insurance cover. If a vehicle owner is asked to produce his documents and fails to produce a
proof for their motor insurance policy then it is a penal offence.

Form A policy or act policy/ act only policy must be possessed by any driver or owner of a
vehicle that operate within the territorial limits of India according to the Motor Vehicles Act and
its provisions. The failure to follow this regulation laid upon vehicle owners will result in
punishment in the form of fine or as specified otherwise by the Motor Vehicle Act. The period of
cover under this policy is usually a period of 12 months or a year from the date of inception, but
there are “short period covers” that are available at higher rates as well. The policy, under the
regulations given under the Motor Vehicle Act, covers the insured’s legal liability in the event of
the death or injury (which may extend to disability) of the third party as well as damages caused
to property or loss of property. In case the insured or policy holder dies and was entitled to
compensation for a liability incurred under this policy, the legal heirs will be indemnified as in
the case of the insured, provided that the insured vehicle was in use and that the driver was
holding an effective and valid driver’s license.

Under Form A, the following liabilities are covered:

a) Liability towards the damage of property belonging to a third party, only to the extent of Rs.
6000;

b) Unlimited liability towards the injury of a third party;

c) Liability towards the employees of the owner of a vehicle while using or travelling in it,
against bodily injury, to the extent that is required as stated under the Workmen’s compensation
Act

d) Unlimited liability towards the bodily injury of the passengers of the vehicle;

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Form B otherwise known as Comprehensive policy, offers specific advantages to the policy
holder and it is also an optional cover. While the policy covered under Form A is very similar
and actually identical to that of Form B for the different classes of vehicles, the overall policy
coverage is different across different classes of vehicles as well. Form B consists of three
sections, namely Section I,II and III. Both the Sections I and II in their entirety are applicable to
private vehicles as well as motorcycles whereas commercial vehicles are covered under Section
III.

In Section I damages or loss caused by either man made or natural causes are covered which
include different calamities and disasters as well as damages caused in transit. It also includes the
limits for various classes of vehicles with respect to the amount that the insuring company will
cover in the event that the vehicle is unable to operate as a result of any of the causes stated
above and the vehicle needs to be delivered to the repairer and then delivered back to the owner.
The sum of Rs 300, Rs 1,500 and Rs 2,500 will be covered for the vehicle classes of two wheeler
vehicles, Private vehicles or taxis and other commercial motor vehicles respectively. Apart from
these transportation charges, the insured/ policyholder can also receive certain amount of
coverage for repairs in the event of an accident.

Section II covers the liabilities towards third parties meaning the liabilities pertaining to bodily
injuries and damage of property.

Section III applies to commercial vehicles and it covers the vehicle while it is being used for the
purpose of towing disabled vehicles. The insurance company will not be liable if damages are
caused to the towed vehicle.

Form B or the comprehensive policy covers the following losses and liabilities:

a) Liability towards the damage of property of third party, in excess of Rs, 6000/-

b) Loss or damage caused to the vehicle and its extra fittings, protection and accessories;

c) Removal costs and towing disabled vehicles (for commercial vehicles only)

d) Liability towards the employees under the Fatal accidents acts 1855, Common Law and the
workmen’s compensation Act

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e) Personal accident benefits for the employees, owner and passengers.

There are exclusions to this insurance cover, where the insurance does not cover any damages or
loss caused due to the following reasons:

a) Damage to the tyres with the exception that the vehicle was also damaged;

b) The intoxication of the driver;

c) The vehicle being operated/ driven by a person who does not possess at that time a valid and
effective license;

d) The Family Auto Policy (a policy with combined coverage for various different liabilities that
can be purchased either separately or all together);

e) The vehicle suffered mechanical breakdown or suffered from wear and tear caused by
excessive use;

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 Conclusion

The rise of population has led to the increase of consumers that are in need of modes of transport
that are today very easily available in the market at affordable prices, this has unfortunately led
to the deaths, injuries and loss of property for many individuals and their families because of
unforeseen circumstances that have taken place. While it is not possible to prevent and protect
each and every person operating or taking the service of a motor vehicle, it is certainly possible
to setup a sort of safety net in order to lessen the damage caused by such an unforeseen incident
while making sure that those truly in need of some form of protection are given their fair share.
In light of the points given in the lines above I believe that it is very important for each driving
citizen of India as well as those who utilize motor vehicles to know about the insurance policies
that are being provided in the country so as to prevent any needless harm that may follow due to
either an accident or some other unpredictable disaster.

The market for insurance is growing at a very quick rate while Motor Vehicle Insurance seems to
be leading at the forefront, which is a very positive note as it ensures that better and safer
policies will continued to be implemented with the passage of time that will ensure that the sting
of any unfortunate incident may be lessened.

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