Defraying risks has been a goal for humans ever since trading began, perhaps even as far back as the Early Bronze Age. The Code of Hammurabi speaks of traders insuring their goods in ancient Babylon. As trade and human civilizations grew more complex, so did insurance.[1] Today, you can insure almost anything.

Insurance for vehicles though, is a fairly recent concept – just 100 years old. This is hardly surprising, as it was only in 1897 that the first motor vehicle was tested. With the rapid growth of motor vehicles and therefore increase in road accidents, the idea of insuring vehicles came to make sense. Unlike today, vehicle insurance and third party insurance was not compulsory in the early days of the motor car. Several countries did introduce rules that required car buyers to prove they had the means to pay damages in case of accidents. Over time, countries began to codify this by making insurance compulsory.

Today, in India, as elsewhere in the world, third party insurance for motor vehicles is a must; driving a vehicle without valid insurance is an offence. The Motor Vehicles Act 1988 lays out regulations concerning this. The Motor Vehicles (Amendment) Bill 2017 that was passed in the Lok Sabha in April 2017 and is pending before the Rajya Sabha, suggests several changes to the motor vehicle insurance system in the country.

Limiting insurer’s liability in third party claims

In its earlier avatar the Amendment Bill had a new clause relating to liability of insurers. This clause capped the liability of insurers at Rs 5 and 10 lakhs for grievous injury and death respectively in third party claims even if the Claims Tribunal awards a higher compensation. The difference, then, would have to be paid by the party that caused the accident. Under the current Motor Vehicles Act, there is no upper limit to the insurer’s liability. This capping of liability met with much opposition from various quarters including the Standing Committee on Transport to which the earlier Bill had been referred. The Standing Committee, in its report, noted that the purpose of insurance was to defray individual risk over a large pool of people (premium contributors) especially as the risk is apprehended to be beyond the means of most individuals. Therefore, in the Committee’s opinion, insurance companies cannot be allowed to escape their responsibility after collecting hefty amounts of no claim insurance premiums. The Committee felt that capping the liability was not a good move and was against the interest of millions of road users (in reality every citizen as we all use the road at some time). The Committee had recommended the clause be dropped.

The clause, however, remains, in a slightly modified form; it no longer mentions an amount but instead gives the Centre the power to limit the liability of insurers in consultation with the Insurance Regulatory and Development Authority (IRDA), a government body.

Source: flickr

Schemes for compensation

The Amendment Bill has some positive additions as well. It gives the Centre the power to formulate a scheme for cashless treatment of victims during the golden hour and for creation of a fund for this purpose. This is in addition to the Centre’s power to create a scheme for compensation for victims of hit and run cases. Section 161 of the Amendment Bill also increases the compensation amount for hit and run victims from Rs 12500 and 25000 for grievous injury and death to Rs 50000 and 2 lakhs respectively.

The Amendment Bill also lays out the framework for setting up a Motor Vehicle Accident Fund in Section 164 B. This fund, managed by the Centre, would be used to treat accident victims and to provide compensation to hit and run accident victims. In the case of those killed in such accidents, their heirs would be compensated.

Settling claims directly

Section 149, which has been introduced in the Amendment Bill, details the process of settling a claim. The insurance company is required to have designated Claims Officers who may make an offer to the claimant for settlement before the Claims Tribunal. This is to be done within 30 days and after following procedures that the Centre may prescribe. If the claimant accepts offer, the Tribunal will note this and payment is to be done within 30 days of date of receipt of such record of settlement. If the claimant does not accept the offer, a hearing date is to be set by the Tribunal to adjudicate. In the current Act, there is no scope for a claimant and insurer to come to a mutual agreement without a hearing.

This could make it easier for the claimant to realise some compensation quickly and with the Tribunal keeping an eye on the matter, the chances of the claimant being railroaded into a lopsided offer should be minimised.

Compensating everyone injured or killed in a road accident

The current Act specifically exempts insurance policies from being liable to compensate employees (of the insured party) injured or killed in the course of their work except as under the Workmen’s Compensation Act 1923. The Amendment Bill covers everyone injured or killed in a road accident and so the reference to the Workmen’s Compensation Act is redundant and has been removed, according to the response given by the Centre to the Standing Committee.

Breach of policy conditions

Under the current Act, the insurer does not have to pay any amount if there has been a breach of policy conditions such as if the person driving the vehicle (when the accident took place) does not have a valid licence. The Amendment Bill adds two more such conditions: if the person was driving under the influence of alcohol or drugs and if there is non-receipt of premium as required under section 164-B of the Insurance Act 1938.

The first condition is not an unwelcome move, and the second presumably will require those taking insurance to be more vigilant about the paperwork.

So, by and large, the Amendment Bill will make it easier for claimants. The major negative perceivable is the capping of the insurer’s liability. The other, perhaps unnecessary, change is that the Amendment Bill increases the time given to police officers to file the accident information report to the Claims Tribunal, insurer, etc from one month to three. Considering the lackadaisical attitude towards accident investigation, there seems to be no reason to take three months to file the report to the Tribunal. If, on the other hand, the Centre plans to ensure that the government machinery (at both the Centre and the state) moves a little more efficiently and effectively, including in collecting data and investigating accidents, then perhaps the three months is warranted.

[1] https://www.britannica.com/topic/insurance/Historical-development-of-ins...