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 lat 4-5
years. Legally, no motor vehicle is allowed to be driven on the road without
valid insurance. It represents a combined coverage of the vehicles
including loss or damage to his property or life and the third party coverage.

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.

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.
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.