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.

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.

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.

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.

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 doesnt mean there arent still ways to save
money, even if you dont 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.

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.

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

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.

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 insureds 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.

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.

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 ones 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.

 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 Workmens 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.

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.

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.

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 insureds 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.

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.

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
insureds 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.

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.

2.

Particulars about the proposed: Name, Address and Occupation.

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

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.

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 Insureds 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
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
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%.

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 companys office and thus take longer time.

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
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
o Police Report
o Details of Drivers 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.

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
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).

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:
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
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, lets 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:
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
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.

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.

6. Recommendation
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40.

39.

Conclusion

41.
42.
43.Motor Vehicle Insurance falls under General Insurance. Its importance is
increasing day by day. In Motor Insurance the owners 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.
44.
45.
46.
47.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. Peoples 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
48. industrialization, the joint families have split into single nuclear families.
49.Thus, insurance has become the most reliable tool an individual can use
to plan for his future.
50.
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59.
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62.Reference Books:
63.

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Bibliography

 Motor Insurance by V.B.Kolhatkar

64.
Insurance by P.K.Gupta
65.
Insurance by Julia Holyoake
66.
67. Principles and practice of Insurance by Dr. P.Peria