Motor Insurance

Motor insurance business in India is regulated under the India Motor Tariff
2002 (IMT) issued by the erstwhile Tariff Advisory Committee in 2009.

In addition, the Indian insurance regulator, the Insurance Regulatory and

Development Authority of India (IRDAI) also issues guidelines and circulars
from time to time, introducing revisions and clarifications with respect to motor
insurance business.

As per Section 146 of Motor Vehicles Act 1988 - No person can drive a vehicle
without proper insurance, which reads as under:

Necessity for insurance against third party risk —

(1) No person shall use, except as a passenger, or cause or allow any other person
to use, a motor vehicle in a public place, unless there is in force in relation to the
use of the vehicle by that person or that other person a policy of insurance
complying with the requirements of this Chapter:

[Provided that in the case of a vehicle carrying, or meant to carry, dangerous or

hazardous goods, there shall also be a policy of insurance under the Public
Liability Insurance Act, 1991 (6 of 1991).]

Types of Policies:

There are two types of Policies:

(i) Liability Only Policy: This covers Third Party Liability for bodily injury
and/ or death and Property Damage. Personal Accident Cover for Owner
Driver is also included. This policy is also known as ACT only policy etc.

(ii) Package Policy (Comprehensive): This covers loss or damage to the

vehicle insured in addition to (i) above.
In Indian Market there are number of covers offered by Insurance
companies under various names the basic cover will be either of these two
policies, of course, with some add on covers.

Comprehensive (Package) Car insurance policy

In Car insurance, a comprehensive car insurance policy covers damage to your

vehicle caused by certain events. These include (but are not limited to) fire, theft,
vandalism and falling objects. It is advisable to buy the Comprehensive insurance
policy for your car because it covers the insured, vehicle and third party in a single
policy.

This type of insurance covers all the risks covered in the Motor Vehicles Act plus
loss or damage caused to the vehicle:

 by fire, explosion, self-ignition or lightning;

 by burglary, housebreaking or theft;
 by riot and strike;
 by earthquake (fire and shock damage);
 by flood typhoon hurricane storm tempest inundation cyclone
hailstorm frost;
 by accidental external means;
 by malicious act;
 by terrorist activity;
 whilst in transit by road rail inland-waterway lift elevator or air;
 by landslide rockslide.
 Personal Accident Cover -Coverage of ` 2 lakhs for the individual driver
of the vehicle while travelling, mounting or dismounting from the car.
Optional personal accident covers for co-passengers are also available.
Third Party Legal Liability -Protection against legal liability due to accidental
damages resulting in the permanent injury or death of a person, and damage
caused to the surrounding property.

Subject to the limits of liability as laid down in Motor Vehicles Act 1988 as
amended from time to time, the insurance Company under this section will
indemnify the insured in the event of an accident caused by or arising out of the
use of the vehicle against all sums which the insured shall become legally liable
to pay in respect of: -

(i) death of or bodily injury to any person including occupants carried in the
vehicle (provided such occupants are not carried for hire or reward) but except as
far as it is necessary to meet the requirements of Motor Vehicles Act, the
Company shall not be liable where such death or injury arises out of and during
the employment of such person by the insured.

(ii) damage to property other than property belonging to the insured or held in
trust or in the custody or control of the insured.

Exclusions

The Comprehensive Insurance policy excludes the loss or damage caused due to:

 Normal wear and tear and general ageing of the vehicle

 Depreciation or any consequential loss
 Mechanical/ electrical breakdown
 Loss/ damage due to war, mutiny or nuclear risk
 Damage to/ by a person driving any vehicles or cars without a valid license
 Damage to/ by a person driving the vehicle under the influence of drugs or
liquor
 Vehicles including cars being used otherwise than in accordance with
limitations as to use
 Wear and tear
  Consumables
 Damage to tyres and tubes unless the vehicle is damaged at the same time,
in which case the liability of the company shall be limited to 50% of the
cost of replacement
 Driving the vehicle against the limitations as to use.

INSURED DECLARED VALUE:

Each car is insured at a fixed value which is termed as the Insured’s Declared
Value (IDV). This sum insured is calculated based on several factors. Here’s how
it works:

IDV is calculated based on the manufacturer's listed selling price of the vehicle
plus the listed price of any accessories after deducting the depreciation for every
year as provided by the Indian Motor Tariff.

If the price of any electrical and / or electronic item installed in the vehicle is not
included in the manufacturer's listed selling price, then the actual value (after
depreciation) of this item can be added to the sum insured over and above the
IDV.
In case of vehicles fitted with bi-fuel system such as petrol/diesel and CNG/LPG,
permitted by the concerned RTO, the CNG/LPG kit fitted to the vehicle is to be
insured separately at an additional premium of 4% on the value of such kit. You
need to specifically declare this in the proposal form.

What Insurance Cover Is Right for You?

If what you are looking for is coverage for yourself, against damages to lives and
properties of third parties (as required by M V Act) and your vehicle, a
comprehensive car insurance policy is what you need. It is a wider coverage plan
since it has provisions for third-party along with cover for the damages to your
vehicle due to accidents. Comprehensive coverage policy is expensive as
compared to just third-party insurance cover.
Various insurers are offering covers as mentioned above and in addition to that
add on covers also. There might be slight variations in the benefits and exclusions
depending on the insurance company and it is advisable to check the terms and
conditions in detail before taking a policy

The Indian motor insurance framework underwent a variety of key

developments in 2019, including:

 The introduction of standalone own damage cover;

 The extension of the present insurance framework on ads to point-of-sales
persons and registered automobile dealerships; and
 The notification of an amendment to the Motor Vehicles Act 1988.

The IRDAI also proposed revisions to various extant provisions of the India
Motor Tariff.

Transfer of vehicles

The IRDAI has reiterated that in the event that a motor vehicle is sold or
transferred, the guidance provided under General Regulation 17 of the India
Motor Tariff (i.e., transfers) will apply. Where the new owner chooses to obtain
third-party liability cover from another insurer, they can cancel the existing third-
party liability cover which was transferred automatically, provided that proof of
the new insurance cover is shown to the previous insurer. In addition to long-term
motor cover, the foregoing clarification also applies for one-year comprehensive
and standalone third-party liability motor insurance policies.

Total loss claims

The IRDAI noted that the salvage from motor vehicles subject to total loss claims
is commonly sold to scrap dealers. Taking cognisance of reports from various law
enforcement authorities that documentation from such destroyed vehicles (ie,
those subject to total loss claims) was being forged to provide a new identity to
stolen vehicles, the IRDAI advised all general insurers (other than standalone
health insurers and specialised insurers) to ensure that the certificate of
registration of all vehicles involved in a total loss claim settlement is
cancelled per Section 55 of the Motor Vehicles Act.

Motor Vehicle Amendment Act

The Motor Vehicle (Amendment) Act 2019 (Amendment Act) was notified by
the central government and came into effect on 1 September 2019. The insurance
specific amendments brought in by the Amendment Act to the Motor Vehicles
Act are summarised below:

1. The Amendment Act instructs the central government to create a special

motor vehicle accident fund to provide compulsory vehicle insurance to
road users. Such fund is designed to be used for, among other things,
treating victims and providing compensation to heirs in case of death due
to a hit and run accident.
2. The Amendment Act empowers the central government to prescribe rules
for providing the minimum premium and maximum liability of insurers in
consultation with the IRDAI.
3. Victims have been provided with the option to approach insurers directly
for pursuing their claim. Insurers, on receipt of information of an accident
from a claimant or on submission of an accident report, must make an offer
to the claimant within 30 days before the Motor Accident Claims Tribunal.
If such offer is accepted by the claimant, the insurer must make payment
within the next 30 days.
4. Insurers may deny third-party liability claims if the driver has no valid
driving licence or permit or the insured has not paid the insurance premium.
 5. Insurers must provide for the cashless treatment of road accident victims,
including during the 'golden hour' (ie, the one-hour period immediately
following an injury).

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