Introduction on Motor Insurance

8/13/2019 Introduction on Motor Insurance

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INTRODUCTION ON MOTOR INSURANCE

Insurance is a contract between an insurer (company) and the insured

under which the insurer undertakes to compensate the insured for loss

arising from the risk insured against. In consideration, the insured agrees

to pay a sum called as Premium in advance. The instrument containing

the contract of insurance is called as Policy. The things, property or life,

which forms basis of insurance, is called as subject matter of Insurance.

The Insurance ct, !"#$ was passed by the %egislature on &'thebruary,

!"'$ and it came into force on !stuly, !"#". It has been amended several

times. It e*tends to whole of India. It is an ct to consolidate and amend

the law relating to the business of insurance. +isk is there at every walk

of life, also endangers life itself. In the same way all financial deals, as

well as possession of money and property goods etc. are fraught with the

element of risk. ll risks do not actually occur at all the times and hence,

it is possible to calculate probable chances of any particular risk

materialiing. It is -uite clear that all the people do not face risks at the

same time. Thus, transfer of risk to another i.e. the insurer is in fact a

pooling the risks. If insurance did not e*ist, each individual had to bear

the losses on his own. Insurance, in effect means that each one in pool

undertakes to bear a portion of the loss. uch an agreement has proved to

be advantageous to everyone as it is uncertain as to who will suffer the

loss. Thus, in course of time, the idea developed that such a common pool

of resources should be managed by e*perts who would calculate the

-uantity of the contribution to be levied on each individual.

In this way the idea of Insurance developed. In modern times, the

insurance has come to be highly commercial undertaking however, the

principle is still the same vi., and the insurer collects premium for a

large number of persons and covers them against a large variety of risks.

/otor insurance is one of the largest non0life insurance of the world. This

is because it is statutorily mandated in most parts of the world. ll motor

vehicles are re-uired to be registered with the road transport authorities

and insured for Third Party %iability. The basic premise is that the motor

vehicle could either cause injury or to a subject of damage, and thus

re-uire insurance.


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/otor Insurance originated in 1.2. where the first motor insurance policy

was introduced into 3ngland in !$"4 to cover third party liabilities. nd

in !$"" the policy was e*tended to cover the accidental damage similar to

what is known as comprehensive policy. In !"5#, the first company

transact motor insurance was 6ar 7 8eneral Insurance 6orporation. fter

9orld 9ar I, there was a considerable increase of motor vehicles in all

the countries and an increase in road accidents. This position warranted

compulsory Third Party %iability insurance in 3ngland through +oad

Traffic ct, !"#5 7 !"#4 which were subse-uently consolidated by +oad

Traffic ct, !"'5.

In India the /otor :ehicles ct was passed in !"#" and in !"4' the third

party insurance was introduced compulsorily. The need for compulsory

motor insurance is obvious. There has been a phenomenal rise in the

motor accidents in the last 40; years. /uch of these are attributable to a

sudden spurt in the number of vehicles. 3very vehicle before being driven

on roads has to be compulsorily insured. The automobile insurance policy

represents a combined coverage of the vehicles including accessories,

loss or damage to his property or life and the third party cover.

The /otor :ehicle ct, !"#" introduced compulsory insurance to take

care of those who may get injured in an accident. The insurance for own

vehicle damage is not mandatory. In India the Tariffs dvisory

6ommittee regulates this business

MEANING

/otor Insurance includes Private 6ars, /otoried Two 9heelers and

6ommercial :ehicles e*cluding vehicles running on rails.

DEFINITIONS

/otor insurance is also mandatory by the law. It is a legal re-uirement in

India to have insured a minimal level of insurance protection before

driving any motor vehicle. normal motor insurance policy provides

coverages for the following damagesestruction or permanent impairing of the powers of any member on joint

(c) Permanent disfiguration of the head or face.

Hi& $n- R#n Acci-en&.


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Ait and run accident is Han accident arising out of the use of a motor vehicle or motor

vehicles the identity whereof cannot be ascertained in spite of reasonable efforts for

the purpose.

ection !'# provides that the central government may establish in fund known as

olatium und to be utilied for paying compensation in respect of death or grievous

hurt to persons resulting from Ait and +un /otor accidents.

It is provided that grievous hurt shall have the same meaning as in the Indian Penal

6ode. ccording to section #&5 of the Indian Penal 6ode the following kinds of hurts

are designed as grievous ct, !"""l$2 -!(n &)e -#&ie8 p!(er $n- "#nc&i!n !"

IRDA=

*+ ubject to the provisions of this ct and any other law for the time being in force,

the uthority shall have the duty to regulate, promote and ensure orderly growth

of the insurance business and re0insurance business.

/+ 9ithout prejudice to the generality of the provisions contained in sub0section (!),

the powers and functions of the uthority shall include,

$+ Issue to the applicant a certificate of registration, renews, modify, withdraw,

suspend or cancel such registration

0+ Protection of the interests of the policy holders in matters concerning assigning

of policy, nomination by policy holders, insurable interest, settlement of


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insurance claim, surrender value of policy and other terms and conditions of

contracts of insurance

c+ pecifying re-uisite -ualifications, code of conduct and practical training for

intermediary or insurance intermediaries and agents

-+ pecifying the code of conduct for surveyors and loss assessors

e+ Promoting efficiency in the conduct of insurance business

"+ Promoting and regulating professional organiations connected with the

insurance and re0insurance business

3+ %evying fees and other charges for carrying out the purposes of this ct

)+ 6alling for information from, undertaking inspection of, conducting en-uiries

and investigations including audit of the insurers, intermediaries, insurance

intermediaries and other organiations connected with the insurance business?

i+ 6ontrol and regulation of the rates, advantages, terms and conditions that may

be offered by insurers in respect of general insurance business not so controlledand regulated by the Tariff dvisory 6ommittee under section '41 of the

Insurance ct, !"#$ (4 of !"#$)

>+ pecifying the form and manner in which books of account shall be maintained

and statement of accounts shall be rendered by insurers and other insurance

intermediaries

+ +egulating investment of funds by insurance companies?

l+ +egulating maintenance of margin of solvency?

,+ djudication of disputes between insurers and intermediaries or insurance

intermediaries

n+ upervising the functioning of the Tariff dvisory 6ommittee


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!+ pecifying the percentage of premium income of the insurer to finance schemes

for promoting and regulating professional organiations referred to in clause (f)

p+ pecifying the percentage of life insurance business and general insurance

business to be undertaken by the insurer in the rural or social sector

@+ 3*ercising such other powers as may be prescribed.

IRDA RELEASES NEW GUIDELINES FOR MOTOR INSURANCE

DECLINED POOL

I+> wide its circular has created a >eclined +isk Pool for ct =nly 6ommercial

:ehicle Third Party Insurance with affect from !.4.&5!&.

T)e "r$,e(!r "!r In-i$n ,!&!r &)ir- p$r&2 -ecline- ri in#r$nce p!!l "!r

c!,,erci$l 'e)icle $re $ 0el!(.

The purpose of creating the Indian /otor Third Party >eclined +isk Insurance

Pool for commercial vehicles is to have e-uitable and fair sharing by all

insurers, simplicity to administer and to bring claims management efficiency.

The declined risk pool shall apply to commercial vehicles for standalone third

party insurance (act only insurance) . Fo comprehensive motor insurance policy

or part thereof shall be ceded to the pool.

/iscellaneous and special class of vehicles falling underclass code of the all

India motor tariff shall also be e*cluded from the scope of the pool.

ll e*isting general insurers shall be admitted as a member of the new pool.

pecialist insurer not licensed for the motor insurance business shall not be

members of the declined risk pool.


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The sessions to general insurance 6orp shall be in accordance with the

obligatory cessions which currently stand at !5L.

8eneral insurance 6orp shall act as administrator of the declined risk pool.

I+> has defined the role and responsibilities of declined risk pool

administrator and insurer.

The premium in the pool shall be reviewed annually based on formula notified

by the authority in its order dated !; pril &5!!.

The premium for declined risk pool shall be determined in accordance with theactuarial principles which shall be used by all insurers and shall be notified by

the authority from time to time.

n agency commission our brokerage not more than !L shall be paid for third

party motor insurance commercial vehicles.

Fo ceding commission in respect of the business ceded to the declined risk pool

shall be paid.

8I6 as administrator shall be paid a fee on actual cost basis.

ny general insurance not willing to write the third party insurance shall refer

to the declined risk pool.

Fo insurer can refuse to write the risk.

I+> has defined the parameters for ceding the proposals to the declined risk

pool

Premium for motor third party insurance or commercial vehicle shall be same

whether underwritten to its net account or ceded to the declined risk pool.

I+> has also specified the manner of calculating the obligations.


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3very general insurance shall appoint a 8rievance +edressal officer to look into

grievance of policyholder in respect of non0availability of motor third party

insurance

DOCUMENTS RELATED WITH MOTOR INSURANCE

PROPOSAL FORM

The proposal form is the basis of insurance. It is so desired as to elicit all information

necessary for a proper evaluation of the risk and for rating. pecimen of the proposal

forms are given in ection ; of the Tariff.

The -ueries madeCdetails stated in the Proposal form are the minimum re-uirements to

be furnished by a proposer. The insurer may seek any other information as desired for

underwriting purposes.

THE :UESTIONS COMMONLY ASED ARE.

Particulars about the proposer

ProposerBs name in full to establish the identify of the insured who is one

of the parties of the contract, and may place the insurer on en-uiry

concerning the moral haard.

ddress< The proposerBs address is necessary for communication and is a

cross checks on the area of use of the vehicle

=ccupation< The answer to this -uestion is important for underwriting

private car and commercial vehicle risk and has an important bearing on

the moral haard. The answer is fair indication of the social status of the

proposer and it will provide some indication of the e*0tent and for what

purpose the vehicle is likely to be used.

Physical disability and mental infirmity0 The answer to these -uestions

are important, but it is difficult to get precise answers particularly in

respect of persons other than the insured who may drive the car.

Previous convictions< record of convictions for driving offences

re-uires close investigations. The en-uiry is generally limited to a period

of five years.


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+egistration letters and number M or identification of the vehicles.

(/ake of the vehicle M 3ngine and 6hassis numbers M These are re-uired for

verification in case of accident.

@ear of manufacture 0 This is necessary because some insurers do not give

comprehensive cover for vehicles manufactured earlier than a predetermined

period or impose restrictions on older vehicles.

Type of body, eating 6apacity and 6ubic 6apacity for private cars0 +ating is

based on value and cubic capacity and %icensed 6arrying 6apacity (goods or

Passengers), as the case may be, in case of commercial vehicles.

>ate of Purchase and Price

InsuredBs declared value of the vehicle

>etails of other vehicles owned by the proposer and details of accidents during

the past # to ; years. These details give some idea about the physical and moral

haard.

>etails of insurance history 0 This is re-uired to ascertain whether there wereany adverse features, such as declinature, cancellation or imposition of special

terms and conditions.

Nuestions relating to e*tra benefits, for which additional premium is charged

and of information for which discount of premium is granted, such as no claim

discount earned voluntary e*cess to be borne, etc.

The answers to the -uestions are followed by declaration in the nature of a warranty

that the answers are correct and shall form the basis of contract with the company.

CERTIFICATE OF INSURANCE

This is the document evidencing that a motor vehicle is insured against third party

liability as re-uired under the /otor :ehicle ct, !"$$. It is an offence to use a

vehicle without a proper certificate of insurance issued by an authoried insure. The

only e*ceptions are 8overnment vehicles and such other vehicles as may be

specifically e*cluded by the 8overnment. The form of the certificate of insurance is

prescribed in the ct (in =+/ ;!). 6ertain common features appear in all types ofcertificates of insurance. These are


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!(a) 6ertificate number.

&(b) +egistration mark and number or description of the vehicle insured.

#(c) 3ffective date of commencement of insurance for the purpose of the ct.

4(d) >ate of e*piry of insurance?;(e) Persons or classes of Persons entitled to drive?

'(f) %imitations as to use?

These are followed by a certificate signed by the uthoried Insurer to the effect that

the policy and the 6ertificate of Insurance are issued in accordance with the provisions

of the 6hapter K 7 KI of the /otor :ehicle ct, !"$$.

The differences in the 6ertificate of Insurance for different types of vehicles are to be

found in the items (e) and (f) above. The wordings for private car and motorcyclecertificate of insurance are as follows1P%I6T3B

prominently endorsed to that effect.

COVER NOTE


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cover note is usually issued when the policy and certificates of insurance cannot be

immediately issued for any reason.

6over Fotes insuring /otor :ehicles are to be issued only in orm ;& in terms

of +ule !4&, ub +ule (!) of the 6entral /otor +ules !"$".

It terms of +ule !4&, ub0+ule (&) of 6entral /otor :ehicle +ules !"$", a

6over Fote shall be valid for a period of si*ty days from the date of its issue

and the insurer shall issue a policy of Insurance before date of e*piry of the

6over Fote.

The cover is worded along the following lines as prescribed by the Tariffate of 3*piry of insurance.

Persons or classes of persons entitled to drive.

%imitations as to use.

dditional +isks if any. pecial 6onditions

THE COLUMN PROVIDES ARE

Policy Fo.

Fame of the 6ompany

The InsuredBs name and address and Dusiness or

=ccupation?

Period of Insurance

8eographical rea.


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+egistration mark and other details of the vehicle

%imitations as to use

>river.

Premium 6omputation.

>ate of signature of Proposal and declaration. ignature of uthoried =fficer.

RENEWAL RECEIPT

This is a document which is issued in lieu of the policy at renewal. s a measure of

economy and -uick service, these +eceipts are issued. This is a simpler document than

the policy.

ENDORSEMENT

n endorsement is a document, which incorporates change in the terms of the policy.

n endorsement may be issued at the time of the policy to provide additional benefits

and covers (e.g. %egal %iability to >river) or to impose restrictions (e.g. e*cess

accidental damage in a public carrier policy) the wordings of these endorsement are

provided in the Tariff. n endorsement may also be issued subse-uently to record

changes such as change of address, change of name, change of vehicle etc. The present

form of the Tariff contains '; 3ndorsement.

RENEWAL NOTICE

It is the practice of companies to issue +enewal notice to the insured usually one

month in advance of the date of e*piry of the policy. This notice provides details of

renewal premium, including Fo 6laim discount, if earned.. s notice is prepared in

advance, there could be a claim between the date of preparation and the date of e*piry.

The renewal premium invited is subject to the provision that in the event of a claim

suitable adjustments will be made in the premium.

Documents

Introduction on Motor Insurance