MOTOR INSUANCE

Introduction

Motor Insurance is one of the largest non-life insurance businesses in the

world. All motor vehicles are required to be registered with the road

transport authorities and insured for third party liability. The basic premise is

that motor vehicles could either cause injury or be a subject of damage and

injury and thus require insurance. The Motor Vehicle Act of 1939

introduced compulsory insurance to take care of those who may get injured

in an accident.

There has been a phenomenal rise in the motor accidents in the last 4-5

years. Much of these are attributable to a sudden spurt in the number of

vehicles. There is a danger at every corner when it comes to Indian roads.

Therefore, every vehicle being driven on roads has to be compulsorily

insured.

Legally, no motor vehicle is allowed to be driven on the road without valid

insurance. Hence, it is obligatory to get the vehicle insured. Motor insurance

policies cover any loss or damage caused to the vehicle or its accessories due

to the natural and manmade calamities like fire, explosion, earthquake,

flood, burglary, theft, riot, strike, malicious act etc. Motor insurance

provides compulsory personal accident for individual owners of the vehicle

while driving. One can also opt for a personal accident cover for passengers

and third party legal liability. The third party legal liability protects against

legal liability arising due to accidental damages. It includes any permanent

injury or death of a person and damage caused to the property.

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MOTOR INSUANCE

It represents a combined coverage of the vehicles including loss or damage

to his property or life and the third party coverage.

We read every day in the newspapers about accidents, bomb explosions

taking place. 30 out of 100 vehicles meet with accidents on the road. You

step out of your house and at every moment encounter number of risks that

one cannot imagine. What is worrying for all of us is not the operation of

those risks but the operations that are accidental, unforeseen and external.

There is hardly any industry i.e. manufacturing activity or service

organization that does not come within the scope of General Insurance. Risk

is inherent aspect of human life whether individual or organization. Without

risks there cannot be progress. Occurrence of uncertainty cannot be

predicted. Insurance is one certain way of dealing with uncertainties because

risk arises out of uncertainty and is a pervasive force in the world.

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MOTOR INSUANCE

Objective of the study

1. To study the practice of motor insurance company.

2. Know how to settle the claim?

3. To create an awareness about the Motor Insurance Policy.

4. To identify the potential policy holders among end users and to create a relationship between the companies and potential customers.

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MOTOR INSUANCE

History of Motor Insurance

Motor Insurance had its beginnings in the United Kingdom in the early part

of this century. The first motor car was introduced into England in 1894. The

first motor policy was introduced in 1895 to cover third party liabilities. By

1899, accidental damage to the car was added to the policy, thus introducing,

the comprehensive policy along the lines of the policy today.

In 1903, the Car and General Insurance Corporation LTD was established

mainly to transact motor insurance, followed by other companies. After

World War 1, there was a considerable increase in the number of vehicles on

the road as also in the number of road accidents. Many injured persons in

road accidents were unable to recover damages because not all motorists

were insured. This led to the introduction of compulsory third party

insurance through the passing of the Road Traffic Acts 1930 and 1934. The

compulsory insurance provisions of these acts have been consolidated by the

Road Traffic Acts 1960.

In India, the Motor Vehicles Act was passed in 1939 introducing the law

relating to compulsory third party insurance. The practice of motor insurance

in India generally follows that of the U.K. market. The business is governed

by a tariff, whereas in U.K. the tariffs have been withdrawn. The Motor

Vehicles Act 1988 has replaced the earlier 1939 Act, and it became effective

from 1st July 1989.

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MOTOR INSUANCE

Meaning

Motor Insurance is insurance where consumers can purchase for cars, trucks

and other vehicles. Its primary use is to provide protection against losses

incurred as a result of traffic and car accidents. An insurance company may

declare a vehicle totally destroyed (‘totalled’ or ‘write-off’) if it appears

replacement would be cheaper than repair. It is a comprehensive policy that

not only covers you against third party but also against accidents, damage,

injury and much more.

Motor Insurance is a legal requirement if you want to drive your car on

public roads. However, this doesn’t mean there aren’t still ways to save

money, even if you don’t belong to one of the traditionally safe group of

drivers. The type of insurance you take out, along with the type of driver you

are, combining to provide the overall likelihood that you will be able to get a

cheap quote.

Compulsory Motor Insurance results in lowering the disposable income or it

results in a shift of income from lower group to the higher group. If it is not

made compulsory, there is a strong possibility that some may not buy these

voluntarily. This is because most of them think that the cost of accidents or

losses will fall on others or they underestimate the risk of loss. Also,

Compulsory insurance would encourage people to drive safely which may

reduce the cost of risk.

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MOTOR INSUANCE

Need for Motor Insurance

In Indian conditions the vehicles are subject to many hazards like potholes,

puddles, traffic management system, jaywalkers, increasing number of

accidents etc. which accentuate the need for automobile insurance. Some of

these hazards are discussed below:-

Footpaths: As footpaths are occupied by hawkers, pedestrians have a

tough time dodging between vehicles to reach the other end of the

road. Large potholes during monsoons can worsen the situation

causing damage to the vehicle.

Drunken Driving: It is another major reason for increase in

accidents, be it a car, two-wheeler or even a truck.

Reckless Driving: Majority of the youngsters drive recklessly caring

little for the law, causing serious accidents resulting in loss of life or

limb.

Fire: There is also a danger of fire or theft of vehicle Therefore,

motor insurance under such unsafe conditions is a must not only to

cover risks towards the owner and the vehicle but also to cover the

financial liability that may arise from an accident in which the other

party is injured or the cost of repairs that you may have to pay to other

party in case of an accident.

Theft: Cases of stolen cars on the rise. Experts in stealing cars are

well aware of the loopholes that can be exploited and accordingly

have been successful in manipulating with the chases no. of vehicles

in order that they are not traced.

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MOTOR INSUANCE

Principles of Motor Insurance

1. Principle of Utmost good faith: Contracts of motor insurance are

governed by the doctrine of “utmost good faith.” It is the name of a

legal doctrine which governs insurance contracts. Under utmost good

faith contracts if there is a violation it is categorized as a material

misrepresentation, a breach of a warranty, or concealment. Some

examples of material facts in motor insurance are the type of vehicle,

the geographical area of use, the physical condition of the driver, the

driving history of the driver etc.

2. Principle of Contract of Indemnity: The principle of

indemnification is that the insured should not profit from the policy.

This does not preclude that the insured will suffer some loss. In fact,

many policies include a deductible which guarantees that the insured

will pay part of each loss himself. In the event of total loss of the

vehicle, insurers pay the market value of the vehicle at the time of loss

or the sum insured whichever is less. If vehicle is damaged, the cost of

repairs is paid, but if old parts are replaced by new, a suitable

depreciation is charged on the cost of new parts.

3. Principle of Insurable Interest: Insurable Interest is one wherein

loss would be suffered from an adverse occurrence to the person

insured. In motor insurance, the vehicle is the property which is

exposed to loss or damage. The insured also has a legal liability

towards third parties; he may suffer financial loss if he incurs that

liability caused by negligent use of the

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MOTOR INSUANCE

vehicle. Therefore, the insured has insurable interest which entitles

him to insure the vehicle against damage and liability risk. Motor

policies are extended to indemnify persons other than the insured in

respect of third party liability. Although owner insured has, no

insurable interest in any such liability, he is deemed as having acted as

an agent in arranging the indemnity on behalf of other persons who

may drive the vehicle and incur liability. Otherwise, the injured third

parties will have no recourse to recover damages.

4. Principle of subrogation: Subrogation is the transfer of the rights

from the insured to the insurer when the loss or damage to the vehicle

is caused by the negligence of another person. Insurers exercise the

right to cover the loss from the person responsible. Subrogation

operates only after the claim is paid.

5. Principle of contribution: It arises when there is double insurance,

that is, when the same vehicle is insured under two policies. The

contribution condition is specially worded in private car policies

because the owner is also covered for the third party liability while

driving cars not belonging to him.

6. Proximate Cause: In this, the loss or damage to the vehicle is

indemnified only if it is proximately caused by one of the insured

perils. The doctrine also applies to third party claims. The third party

injury or property damage must be proximately caused by the

negligence of the insured for which he is held legally liable to pay

damages.

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MOTOR INSUANCE

Classification of Motor Vehicles

For the purpose of insurance Motor Vehicles are classified into the following

categories:

1. Private Cars:

Vehicles used solely for social, domestic and pleasure purposes.

Cars of private type including station wagons, used for

domestic, business and professional purposes of the insured or

used by the insured’s employees for such purposes.

Three wheeled cars (including cabin scooters used for private

purposes)

2. Motor Cycles and Motor Scooters:

Mechanically propelled two wheelers with or without side car.

Mechanically propelled three wheelers with engine capacity.

3. Commercial Vehicles:

Goods carrying vehicles.

Passengers carrying Vehicles e.g. motorized rickshaws, taxis,

buses.

3. Miscellaneous and special types of Vehicles:

Agricultural tractors and fire tenders and salvage corps.

Hearses, ambulances, cranes, excavators

Cinema film recording and publicity vans

Garbage dumping trucks, road rollers etc.

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MOTOR INSUANCE

Types of Motor Insurance Available

1. Two Wheeler Insurance: Two wheeler insurance provides a kind of

personal accidental cover for owners, while driving the vehicle. The

policy generally provides protection from any loss or damage to the

vehicle arising out of natural calamity like fire, injury, burglary etc. The

amount insured will depend on the current showroom price multiplied

by the depreciation rate fixed by the Tariff Advisory Committee at the

time of commencement of policy period. Fast and easy claim process by

most insurance companies will ensure existing customer loyalty and

widen the customer base.

2. Car Insurance: Car insurance is the fastest growing segment in the auto

insurance category. This is because insuring car is mandatory for

everyone buying a new car. Car insurance includes loss or damage by

accident, third party insurance, insurance against burglary etc. The

amount of premium will depend on the make and value of the car, state

where the car is registered, year of manufacture etc.

3. Commercial Vehicle Insurance: This covers all vehicles not used for

personal purpose. Trucks and heavy motor vehicles are covered under

this insurance. This insurance protects against damage caused due to

accident, third party injury etc. The premium amount depends on a

number of factors like showroom price of the vehicle at the

commencement of the insurance period.

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MOTOR INSUANCE

Motor Vehicle Act

In India the Motor Vehicles Act was first introduced in 1939 and later it

became effective from 1st July 1989. It introduced the law relating to

compulsory insurance of any motor vehicle that plies in public places. Motor

Vehicles Act states that every motor vehicle plying on the road has to be

insured, with at least Liability only policy. There are two types of policy one

covering the act of liability, while other covers insurers all liability and

damage caused to one’s vehicle. Since a single policy cannot meet all the

insurance objectives, one should have a portfolio of policies covering all the

needs.

Some of the provisions of the Act provide the following matters:

Rationalization of certain definitions with addition of certain new

definitions of new types of vehicles.

Stricter procedures for grant of driving licenses and period of their

validity

Laying down of standards for the components and parts of motor

vehicles.

Provisions for issuing fitness certificates of vehicles also by the

authorized testing stations.

Enabling provision for updating the system of registration marks.

Maintenance of state registers for driving licenses and vehicle

registration and constitution of Road Safety Councils.

Standards for anti-pollution control devices.

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MOTOR INSUANCE

Seeking to provide for more deterrent punishment in cases of certain

offences.

Liberalized schemes for grant of All-India Tourist permits as also

national permits for goods carriages.

The liabilities that require to be covered under this Act are:

Any liability arising in respect of death or bodily injury to any person

including the owner of the vehicle or his authorized person in the

carriage.

Any liability incurred in respect of damage to any property of a third

party.

Any liability incurred in respect of the death or bodily injury of any

passenger of a public service vehicle.

Any liability arising under Workmen’s Compensation Act, in respect

of injury or death of:

Any liability for bodily injury or death of passengers who are carried

for reward or hire by reason of a contract of employment.

The policy should carry a ‘no fault’ liability limited to a sum of Rs

50,000 in case of death, Rs 25,000 in case of permanent disability and

Rs 6,000 in case of damage to property.

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MOTOR INSUANCE

Laws and Regulations

The classical scene on Indian roads is that of arrogant drivers bullying over

safe drivers. Trucks, buses, cars, two wheelers and three wheelers all

wedging in between other vehicles, try to race ahead, at traffic signals and in

between signals. With their hands on the steering wheel, most drivers feel

they own the roads. For these drivers traffic rules are silly and kill the joy of

driving a vehicle.

More than 35 million registered vehicles traffic a network of around 3

million kms of roads in India. The Indian roads see more than 3 lakh road

accidents that kill more than 65000 people and injure another 3 lakh. The

most appalling fact is that, most accidents happen due to sheer ignorance

amongst drivers and vehicle owners of basic rules for Indian roads.

Therefore, better knowledge of rules and regulations could help everyone on

the roads.

The RTO office enforces the law on Indian roads, and the law that governs

the Indian roads is the following:

The Motor Vehicles Act (MVA) 1914/ 1939 AND 1988- The law for

operation for all Motor Vehicles in India.

The Central Motor Vehicles Rules (CMVR) 1994- Rules that stipulate

various procedures with reference to the MVA 1988.

The State Motor Vehicles Rules- Rules framed by various state governments

in accordance with the MVA and CMVR to suit local conditions of the

State.

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MOTOR INSUANCE

Types of Motor Insurance Policies

Legally, no motor vehicle is allowed to be driven on the road without valid

insurance. The All India Motor Tariff governs motor insurance business in

India. According to the tariff, all classes of vehicle use the following types

of motor insurance policies as issued under Car and Two-Wheeler insurance.

1. Car Insurance:

Suitability: One should possess a valid “Liability Policy” to use a

motor vehicle in a public place, as it is made compulsory by the provisions

of Motor Vehicles Act 1988. In case a vehicle is purchased under Hire

Purchase agreement, the financiers insist upon a Package Policy to take care

of their interest as collateral security.

Salient features:

Insurance companies issue Liability for “Act Risks” and

Package policy for Comprehensive Risks under the Motor Vehicles

Insurance.

Liability Policy:

Liability policy covers risks required to be covered under the

Motor Vehicles Act. It is mandatory that every car owner be covered

against Act Risks under section 146 of Motor Vehicles Act 1988. The

scope of cover is to pay compensation for death of or bodily injuries

to third parties and damage to the property of third parties. While the

insured is treated as the first party and the Insurance Company second

party, all others would be third parties.

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MOTOR INSUANCE

This policy provides personal accident cover of Rs 2, 00,000 to owner

driver. While the compensation for the personal injuries to third parties is

unlimited, property damage is limited to Rs 7, 50,000.

Package policy:

This policy covers all the risks of liability policy as well as the

loss of or damage to insured’s vehicle, also the perils covered are:

Damage to vehicle by accidental external means, fire, lightning,

explosion, self ignition, burglary

Riot and strike, malicious acts and terrorist acts

Earthquake

Flood, inundation, cyclone etc

Landslide/ rockslide

Package policy can be restricted to loss or damage due to fire or theft or

both. In case of liability policy + fire, the premium is only 25% of own

damage premium + liability premium. In case of liability only

policy + theft, the premium is only 30% of own damage premium + liability

premium and in case of liability only policy + fire and theft, the premium is

50% of own damage premium + liability premium.

No claim discount:

For every claim free year, the insured is rewarded with

discounts in premium up to an extent of 55%. In case of a claim in any

year, bonus earned till that year is wiped out.

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MOTOR INSUANCE

2. Two Wheeler Insurance :

Suitability: All two wheeler owners should avail the Policy A or the

“Act Policy” as it is made compulsory by the provisions of Motor Vehicles

Act 1988. In case a vehicle is purchased under Hire Purchase agreement, the

financiers insist upon a Comprehensive Policy to take care of their collateral

security.

Salient features:

Insurance companies issue policy A or “Act Policy” and

Policy B or the Comprehensive Policy under the Motor Vehicles

Insurance.

Policy A (“Act Policy”):

Policy A covers risks required to be covered under the Motor

Vehicles Act. It is mandatory that every two wheeler owner be

covered against Act Risks under section 146 of Motor Vehicles Act

1988. The scope of cover is to pay compensation for death of or

bodily injuries to third parties and damage to the property of third

parties. While the insured is treated as the first party and the insurance

company as second party, all others would be third parties. As per

requirements of the Motor Vehicles Act, while compensation for

personal injuries to third parties is unlimited, property damage is

limited to Rs 6,000 only. This limit can be enhanced on payment of

additional premium.

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MOTOR INSUANCE

Policy B (Comprehensive Policy):

For private cars and motor cycles, there are two sections in the

Comprehensive Policy.

Section 1 concerns loss or damage to the vehicle and covers the risks, This

policy covers all the risks of Policy A as well as the loss of or damage to

insured’s vehicle also, the perils covered are:

Damage to vehicle by fire, lightning, explosion

Riot & strike, malicious acts and terrorist acts

Earthquake

Flood, inundation, cyclone etc

Landslide/ rockslide while in transit by rail, road, air

Policy B can be restricted to loss or damage due to fire or theft or both fire &

theft in combination with policy A or without. In case of “Act Policy”+ fire

or theft, the premium is only 25% of own damage premium+ Act premium.

In case of Act + Fire & theft, the premium is 40% of own damage premium

+ Act premium. These extended

covers can be obtained without inclusion of “Act” risks, provided the vehicle

is not put to use.

The geographical limit for use of the vehicle is India, but the limits can be

extended to Nepal & Bhutan without extra premium and to Bangladesh by

charging an extra premium of Rs 50 for comprehensive policy and Rs 10 for

Act policies. Policies can be issued for periods less than one year. Long term

policies can be issued for “Act” only risks.

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MOTOR INSUANCE

Documents

Proposal Forms: In Motor Insurance contract the proposal form is used as a

rule, it constitutes the means of communicating the offer to the insurers or

for making proposal for motor insurance. It is so desired as to elicit all

information necessary for a proper evaluation of the risk and for rating. The

questions commonly asked are:

1. Particulars about the proposed: Name, Address and Occupation.

2. Details of the vehicle to be insured: Registration letters and numbers make

of the vehicle, date of purchase and price paid etc.

3. Certificate of Insurance: This is a document evidencing that a motor

vehicle is insured against third party liability as required under the Act.

Certain features which appear in the certificate are:

Certificate number

Registration mark and number or description of the vehicle insured

Effective date for commencement of insurance

Date of expiry of insurance

Limitations of use

Persons or classes of persons entitled to drive

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MOTOR INSUANCE

4. Cover Note: It is usually issued when the policy and certificate of

insurance cannot be immediately issued for any reason. It has to be issued

in a prescribed form and is valid for a period of 15 days.

5. Policy Forms: Policy forms like proposal forms vary within wide limits as

between different classes of insurance, but they have certain features in

common. The policy is not the contract itself, but the evidence of the

contract. As soon as the policy is issued, the cover note is cancelled.

6. Endorsements: It is a document which incorporates change in the terms of

the policy. It may be issued at the time of issuing the policy to provide

additional benefits and covers or to impose restrictions.

7. Renewal Notice: It is the practice of companies to issue renewal notice to

the insured usually one month in advance of the date of expiry of the policy.

8. Renewal Receipt: This is a simpler document than the policy. It is worded

to the effect that in consideration of receipt of renewal premium, the policy

is renewed for a further period of 12 months.

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MOTOR INSUANCE

Underwriting

Motor Insurance business in India is generally considered to be an

unprofitable class of business. It is therefore essential to adopt a sound

underwriting policy which involves not only careful selection of risks and

imposition of appropriate terms and conditions. The main factors taken into

consideration for underwriting are as follows:

1. The type of Vehicle: The underwriting approach differs according to the

type of vehicle. The heavier vehicles are more exposed to accidents since the

resultant damages they incur are more. Similarly, vehicles with higher

carrying capacity expose more passengers to risk. Therefore heavier vehicles

attract higher premium rate. In private

Cars, taxis and motor cycles the more the cubic capacity, the higher is the

premium rate.

2. The value of the vehicle: The premium rate is applied on the value of the

vehicle to arrive at the premium payable. It is the owner who has to select a

correct value of the vehicle and declare the same for insurance. This value is

known as the Insured’s Estimated Value (IEV). In motor insurance, the IEV

is the limit of liability per accident and not for the entire period of insurance.

Normally, this value is arrived at by considering the age of the vehicle and

its present purchase price. It is not worthwhile to insure your vehicle at a

higher value since that will increase the premium payable but, in case of

total loss, only the market value would be payable.

It is very important to select a correct IEV for insurance. There is a tendency

of motor vehicle owners to declare a lower value for insurance to reduce the 20

MOTOR INSUANCE

premium expenditure. Although, insurance companies check the IEV for its

sufficiency before accepting the insurance, this is not a correct practice as

the insured is exposed to a greater loss in case the vehicle is totally lost or

damaged.

3. The Use of the Vehicle: Risk exposure varies in relation to the use of the

vehicle. For e.g. taxis attract a higher premium rate whereas goods carrying

vehicles, which are used as private carriers and transport, attract a lower

premium rate.

4. The Geographical area of operation: The area of operation of a vehicle

has a direct bearing on the premium rate. This is so because, certain areas

are more congested with high densities of population and road traffic than

others and poses higher exposure to accidents. For this purpose, the tariff

differentiates two zones in India, i.e. Zone A and Zone B, for private cars

and taxis.

Zone A represents the Madras region and Bombay region (excluding

Bombay city) and Zone B represents the Calcutta region, Delhi region and

Bombay city. In Zone B, the densities of population and road traffic are

more and hence attract a higher premium rate. Such differential rating does

not apply to commercial vehicles such as trucks and buses, as these vehicles

normally travel throughout India for their operation.

5. Driver of the vehicle: The personal hazard of the driver is a crucial factor

in the underwriting system. The hazard arising from the driver can be

accessed from the point of view of his age, physical health, occupation and

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driving experience. Age has a material bearing on the risk. The young driver

presents an unfavorable hazard because speed has special attraction for

youth. Some insurance companies may also consider the sex and marital

status of the driver.

There is evidence that a female driver may present a better risk than a male

and that a married person with possibly a family is a better risk than a single

person. The driving experience may indicate accident proneness. It is found

that numerous claims occur with new drivers because of their limited driving

experience. Another great menace on the road is the experienced driver who

is reckless and will take risks which the new motorist would never do.

The claims experience: Unfavorable claims experience is obviously a bad

risk. The tariff has adopted a system called the Bonus/Malus Clause, to give

discounts for good claims experience and a loading for bad experience.

The system of Bonus/Malus recognizes the above factor indirectly since

bonus is a reward which allows discounts for claim free period, while Malus

is a loading in the premium for adverse claims. The minimum bonus is 20%

and maximum is 65% whereas minimum Malus is 10% and maximum is

50%.

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MOTOR INSUANCE

Claims

Motor Insurance business in India is generally considered to be an

unprofitable class of business. In recent years, the claims under motor

insurance have shown signs of deterioration. With the increase in the

number of vehicles and traffic density, higher costs of labour and spare

parts and escalating awards for third party claims, control of claims cost is

imperative.

The Insurance Companies in India are therefore required to pay the

compensation amount to accident victim or the family members within 90

days. If the insurance company fails to do so, then the Motor Accident

Claims Tribunals (MACT) must impose a penalty of Rs 5,000 on such

companies for the delay. If after 90 days the insurance company fails to pay

the amount it shall be the duty of the banker to deposit the cheque drawn in

the name of claimant with the MACT in one week of 90 days expiry period.

Most of the people perceive that procedure involved in claiming insurance is

not too complicated and cumbersome. Smaller claims are processed within a

period of two weeks but larger claims involve more procedures at the

insurance company’s office and thus take longer time.

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Settlement of claims under Motor Insurance

For settlement of insurance claim under motor vehicle insurance the

following claims usually occur in the following ways:

1. Claims for Own Damage:

On receipt of notice of loss, the policy records are checked to see that the

policy is in force and that it covers the vehicle involved. The loss is entered

in the claim register and a claim form is issued to the insured for completion

and return. The insured is also requested to submit a detailed estimate of

repair charges.

Assessment of Survey Report: Independent Automobile

Surveyors are assigned the task of assessing the cause and

extent of loss. They inspect the damaged vehicle. And submit

their report along with the copy of the policy, claim form and

estimate cost of repairs.

Claims Documents: The other documents required for

processing the claim are:

o Driving Licence

o Registration of Certificate book

o Fitness Certificate

o Police Report

o Financial Bill 24

MOTOR INSUANCE

o Satisfaction Note from the insured

o Receipted Bill from the repairer if paid by insured

Settlement of Claim: On the basis of survey report and claim

documents the insurance company determines the extent of its

liability and the loss is indemnified. The insurance company

may get the vehicle repaired instead of making cash payment to

the insured in case of damage of motor vehicle.

2. Claims for Theft or Total Loss Claims:

Total losses can also arise due to theft of the vehicle and its remaining

untraced by the police authorities till the end. These losses have to be

supported by a copy of the First Information Report (FIR) lodged with

police immediately after the theft has been detected. If the police authorities

do not succeed in recovering the vehicle for

theft claims, the insurer is requested to submit the certificate of side No. or

CR No. Certification of true and undetected R.C. books and taxation

certificate of vehicle along with documents related to vehicles and insurers.

On the basis of investigation or inspection with valid documents the

insurance company determines the total loss or theft.

Claims for Third Party:

On the receipt of notice of claim from the insured, or the third party or from

Motor Accident Claims Tribunal, the matter is entrusted to an advocate. The

insured is requested to submit full information relating to accident along

with the following documents:

o Driving licence

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MOTOR INSUANCE

o Police Report

o Details of Driver’s prosecution

o Death certificate

o Medical certificate

o Details of age, income, no of dependents etc.

On the basis of the written statements the matter is then filed with Motor

Accident Claims Tribunals by the Advocate, the MACT determines the

amount of claims to the third party.

A claim is not honoured under the following circumstances:

o Any accident outside the geographical boundary of India

o Any accident when the vehicle is driven by a driver without a

valid license.

o Person driving under the influence of liquor or drugs

o Wear and Tear: Consequential loss, depreciation, mechanical or

electrical breakdown, failure or breakages.

o War and allied perils

o Carrying of persons or goods more than the permitted capacity

by R.T.O.

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Case Studies

Changing Trends in Commercial Vehicles Insurance in India:

Swami Dorai, the owner of a transport company was giving instructions to

one of his truck drivers in the wake of new guidelines for insuring

commercial vehicles.

"Drive carefully, complete this trip without any major repairs," he said. His

truck driver asked him the reason for the emphasis on repairs. "Following a

burgeoning loss ratio, the state-run general insurance companies are no

longer going to provide comprehensive insurance

cover to commercial vehicles (CVs) over seven years old," replied Dorai.

Insurance companies issued a circular directing branch and divisional offices

to stop accepting comprehensive insurance policies for vehicles over seven

years old from 2002. According to the circular, commercial vehicles over

seven years old will be insured only for third-party liability. Comprehensive

insurance policy covers third-party liability as well as damages suffered to

vehicles. The insurance cost for motor vehicles was perceived to be too high.

Dorai went to meet Krishna Reddy, the divisional manager of National

Insurance Company which had insured all his vehicles, to talk about the

issue.

“Although the company has not stopped insuring old commercial vehicles, it

has changed the mode of accepting premiums. These will henceforth be

accepted only at liability,” said Reddy. Comprehensive cover is being

discouraged. However the decision to provide comprehensive cover has

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MOTOR INSUANCE

been left to the discretion of field officers.

The objective of regulation has been to make insurance available to all

motor vehicle operators. Though Mr. Dorai possesses old vehicles, the

vehicles are in good shape and the insurer is benefiting as his claims are less

than what he pays as premium, thus he asked Reddy to increase the premium

amount. Reddy then told Dorai that taxies carry more passengers than

prescribed. In case of accidents causing death or injury, the insurance

companies have to bear the liability of all the passengers, even if there are

more than the numbers prescribed.

Thus the insurers make huge losses as the claims exceed the amount

collected through premiums. This is one reason why insurance companies

are discouraging third party cover and have curtailed commission to agents.

The other reason is that the insurers have detected fraudulent transactions

while claiming damages.

Solution:-The insurers should not to provide insurance for commercial

vehicles as the claims ratio in the motor vehicle insurance category has been

consistently high in the past. It is necessary to develop fleet safety programs

(by transporters).

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MOTOR INSUANCE

Issues and Challenges

The Motor Insurance industry in India has been in existence for a long time.

The market, like other insurance markets in India, has been detariffed and

thus different players can come up with different products and not be bound

by the tariff rules laid down by the Tariff Advisory Committee (TAC)

Motor Insurance in India in some sense has been similar as anywhere else in

the world- there have been different kinds of products but mainly the

protection is towards any damage suffered by the insured. This means that

the insured could claim damages from the insurance company against the

costs for damages caused due to an accident. Further, the insurance company

also provided incentives to the insured in terms of “No Claims Discount” i.e.

if there was no claim made in a particular year; the insured would get a

discount on the premium of the next year subject to a maximum discount

possible. All these are in line, at least, with the automobile insurance

policies in force in a number of developed markets.

However, there have been differences in the way these policies have been

implemented in India. These issues have been existent for a long time but

never came to the fore in the days of the tariff regime and government

controlled insurance market. But with about a decade of liberalization of the

insurance sector in India and the detariffication of the market in recent times,

some of these issues have become really relevant and needs to be looked at

with greater scrutiny.

Some of the major issues are as follows:29

MOTOR INSUANCE

The age of the driver and the age of the driving license have no relation to

the premium amount:

The likelihood of an accident due to speeding is linked to two main

factors:

Age of the driver

Age of the driving License

It has been observed that younger drivers are more prone to speeding and

thus have a higher probability of being involved in high speed crashes and

accidents leading to huge claims on the insurance policies. Very old drivers

have been observed to have high probability in being involved in accidents

due to their slowness in reflexes or other medical conditions.

Internationally, mainly in the developed world, these conditions are

considered while pricing the motor insurance policies. This implies that

young and new as well as old drivers pay more in terms of premiums on

their motor insurance policies as compared to middle-aged drivers with a

relatively old driving licence. This kind of movement on the premium values

is needed to ensure that the insurance company is well covered in terms of

the risks it faces by selling the insurance policies.

However, Indian markets observe none of these. In fact, the insurance

premium is dependant not on the age or the experience of the driver but on

the age of the policy in question. This is not necessarily the best strategy,

especially from the perspective of the middle-aged experienced driver who

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MOTOR INSUANCE

should see a reduction in the premium cost but in effect sees no different

from someone such younger and inexperienced. Similarly, the insurance

company is not compensated for the additional risks it takes by insuring old

drivers as the premium charged cannot be modified to take care of such

issues.

The type of the car has no relation to the premium charged:

This is another major issue that needs to be tackled by the motor insurance

industry in India. It is a fact that the premium on the car is dependent on the

size of the engine of the car, but then it has to be realized that other factors

also need to be taken into consideration while determining the premium

value for the insurance. For instance, let’s assume that there are two cars

with the same engine size. But let one car be a sedate family car while the

other is a sports car. Obviously, the premium of the sport car should be

more- that is because the likelihood of a sports car speeding and therefore

being caught in an accident is higher than that of the family car. Such issues

or factors need to be considered by the insurers while formulating the

policies and deciding on the level of premium associated with the policies.

This is something that is yet to be done in a large way in India. One standard

reason why it is not so prevalent is the fact that there are very few sports cars

in Indian markets, as compared to the motor market in any developed

country.

The “No Claims Discount” policy in effect lands up subsidizing the “Bad

Drivers” at the cost of the “Good Drivers”:

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MOTOR INSUANCE

All automobile insurance policies in India, as in any other part of the world

have “No Claims Discount” system built into them. This is

Effectively used as a means of rewarding “Good Drivers” for the fact that

they have been good drivers and not caused any accidents which has resulted

in claims to be settled by the insurer. There have been a large number of

studies that have been carried out on the need of such schemes as well as the

efficacy of such schemes.

While such schemes are useful for both the insurer (over a period of time,

the amount paid out as premium decreases) and the insured (has better

information about the insurer and hence can plan better), it has often been

seen that the schemes are not appropriately designed. What this results in is

the fact that the better drivers end up in subsidizing the not so good drivers.

An effective “No claims Discount” scheme should not have such biases and

insurance companies should look at their portfolio and try and ensure that

such biases do not remain.

A point that needs to be made here is the fact that such biases would be

removed with the availability of better information about the driving habits

and patterns of the insured population. This is an issue in India as the

information that is available to the insurers is only based on the information

reaching them when a claim is made. In large number of cases, the

policyholders do not make a claim because the no claims benefit exceeds the

cost of repair and thus makes sense to get it repaired without making a

repair.

The “Claims settlement” process is really not completely geared up to meet 32

MOTOR INSUANCE

all kinds of challenges:

This has been the single largest issue in the automobile insurance sector in

India for a large number of years. The basic problem is the authenticity of

the claim made and the time taken to settle the same by the insurance

company. While insurance companies have made significant strides towards

the timeliness of the disbursement of the accepted claims and in large

number of cases there are cashless claim settlement processes which are in

place but all these work on the premise that the claims are accepted as

genuine by the insurer.

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MOTOR INSUANCE

Finding

1. The claim is settle within in 90 days.

2. It has to be issued in a prescribed form and is valid for a period of 15 days.

3. The policy should carry a ‘no fault’ liability limited to a sum of Rs

50,000 in case of death, Rs 25,000 in case of permanent disability and

Rs 6,000 in case of damage to property.

4. This policy provides personal accident cover of Rs 2, 00,000 to

owner driver.

5. If after 90 days the insurance company fails to pay the amount it shall

be the duty of the banker to deposit the cheque drawn in the name of

claimant with the MACT in one week of 90 days expiry period.

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MOTOR INSUANCE

Recommendation

35

MOTOR INSUANCE

Conclusion

Motor Vehicle Insurance falls under General Insurance. Its importance is

increasing day by day. In Motor Insurance the owner’s liability to compensate

people who are killed or injured through the negligence of the motorists or

drivers is passed on to the insurance company. Motor Insurance business is the

largest single section of accident insurance, if judged by premium income, but

this relates to motor business as a whole.

Insurance growth has been galloping in the recent years. The insurance industry

in particular has been subjected to numerous changes in the last few decades

since the need for insurance is more evident now than earlier. People’s spending

patterns are changing and more and more resources are needed for immediate

consumption. In early 1990s, the joint family system had provided protection in

case any unfortunate incidents were to occur to any individual of the family, but

after the advent of industrialization, the joint families have split into single

nuclear families.

Thus, insurance has become the most reliable tool an individual can use to plan

for his future.

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MOTOR INSUANCE

Bibliography

Reference Books:

· Motor Insurance by V.B.Kolhatkar

· Insurance by P.K.Gupta

· Insurance by Julia Holyoake

Principles and practice of Insurance by Dr. P.Peria

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