Motor insurance business in India is regulated under the India Motor Tariff 2002 (IMT) issued by the erstwhile Tariff Advisory Committee in 2009. While pricing of the Own Damage segment was de-tariffed in 2007, the basic product structure, including the policy wordings and other standard forms, continues to be governed by the General Regulations (GRs) and various other provisions of the IMT. In addition, the Indian insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI) also issues guidelines and circulars from time to time, introducing revisions and clarifications with respect to motor insurance business.
The year 2019 saw a variety of key developments in the Indian motor insurance framework, including inter alia, introduction of a standalone own damage (OD) cover, extension of the present insurance framework on advertisements to point of sales persons and registered automobile dealerships, and notification of an amendment to the Motor Vehicles Act 1988 (MV Act). The IRDAI also proposed revisions to various extant provisions of the IMT.
A brief overview of the key developments in the Indian motor insurance framework in the year 2019 is provided below.
Motor TP Premium
The IRDAI notified the updated premium rates for statutory third party liability (TP) motor insurance for the financial year 2019-201, which has been effective since 16 June 2019. The motor TP premium rates for electrical vehicles and vintage cars were introduced for the first time, which provided a 15% and 50% discount respectively compared to the premium rates made applicable on private cars.
Stand-alone OD Covers
In addition to the bundled long-term TP and 1-year OD cover options for new vehicles permitted by the IRDAI by way of its Circular on "Implementation of the Directions of the Hon'ble Supreme Court of India in the matter of WP No 295/2012 of Shri S Rajaseekaran vs Union of India and Ors" of 28 August 2018 (Long Term Circular), the IRDAI has permitted General Insurers to offer 1-year standalone OD covers for private cars and two wheelers2. In this regard, Insurers are required to ensure that standalone OD cover is offered only if a motor TP cover is already in existence or is taken simultaneously. However, such products are not permitted to be offered on a long term basis as a standalone OD policy.
With the introduction of standalone motor OD covers, the IRDAI also withdrew the mandatory requirement for Insurers to offer bundled (ie, long term TP with one year OD component) insurance products for private cars and two-wheelers.
Clarification on Long Term Motor Insurance
In 2014, the IRDAI had permitted a standalone long term TP cover for two wheelers by way of the circular on "Long Term Motor Two Wheeler Insurance Policy" of 4 August 2014 (2014 Circular)3.
While the long term motor insurance products, introduced in 2018 pursuant to the Long Term Circular, are only permitted with respect to new private cars and new two-wheelers (and not on renewals of existing policies for old vehicles), the IRDAI has now clarified that, Insurers may continue to provide renewals for the standalone long term TP cover for two wheelers, where issued pursuant to the 2014 Circular4.
Transfer of Vehicle
The IRDAI has reiterated that in the event a motor vehicle is sold or transferred, the guidance provided under GR 17 of the IMT (i.e. Transfers) will be applicable5. Where the new owner chooses to obtain a motor TP cover from another Insurer, he/she can cancel the existing TP cover which was transferred automatically, provided that proof of new insurance cover is shown to the previous Insurer. In addition to long term motor covers, the foregoing clarification also applies for one year comprehensive and stand-alone TP motor insurance policies.
With the notification of the Master Circular on Insurance Advertisements of 16 October 2019 (Master Circular), the norms governing insurance advertisements were expressly made applicable to point of sales persons and automobile dealerships operating as Motor Insurance Service Providers (MISPs). MISPs shall now be required to ensure that all communications made by it to either policyholders or the public at large – in relation to motor insurance products or any other advertisements made with the intention of soliciting insurance business, complies with the norms set out under the Master Circular, including in relation to the disclosures required.
Linking of Premium and Traffic Violations
The IRDAI has constituted a working group based on the recommendation of the "High Powered Committee for Traffic Management in the National Capital Territory of Delhi" to establish a system for linking motor insurance premium with traffic violations6. The IRDAI has released terms of reference for examining the National Highway Authority's recommendation, including running an immediate pilot project in Delhi to implement a "premium escalation formula" and developing a system for accessing each vehicle's traffic violation data from law enforcement authorities and transferring the same to the Insurance Information Bureau of India (IIB).
Total Loss Claims
The IRDAI noted that the salvage from motor vehicles subject to Total Loss (TL) claims, is commonly sold to scrap dealers7. Taking cognizance of reports from various law enforcement authorities that documentation from such destroyed vehicles (ie, those subject to total loss claims) were being misused for forgery and providing a new identity to stolen vehicles, the IRDAI advised all General Insurers (other than stand-alone Health Insurers and Specialised Insurers) to ensure that the certificate of registration (RC Copy) of all vehicles involved in a total loss claim settlement is cancelled per §55 of the Motor Vehicles Act 1988 (MV Act).
Motor Vehicle Amendment Act
The Motor Vehicle (Amendment) Act 2019 (Amendment Act) was notified by the central government, and came into effect from 1 September 2019. The insurance specific amendments brought in by the Amendment Act to the MV Act are summarised below:
- The Amendment Act instructs the central government to create a special "Motor Vehicle Accident Fund" for the purpose of providing compulsory vehicle insurance to road users. Such fund is designed to be utilised for, inter alia, treating victims and providing compensation to heirs in case of death due to hit and run accidents8;
- The Amendment Act empowers the Central Government to prescribe rules for providing the minimum premium and maximum liability of an Insurer in consultation with the IRDAI9;
- Victims have been provided with an option to approach Insurers directly for pursuing their claim10. The Insurer, on receipt of information of accident from the claimant or on submission of an accident report, is required to make an offer to the claimant within 30 days, before the Motor Accident Claims Tribunal. If such offer is accepted by the claimant, the Insurer is required to make payment within the next 30 days;
- Insurers may deny TP claims if the driver does not have a valid driving license or permit, or if the Insured has not paid the insurance premium11;
- Insurers must provide for the cashless treatment of road accident victims, including during the golden hour, that is, the one hour time period immediately following an injury12.
In November 2018, the IRDAI had constituted a working group to revisit the product structure of motor insurance in India (Working Group). The Working Group's report13 was released for public comments on 25 November 2019 which made several recommendations for amendments to the existing framework governing motor insurance, including revisions in the existing GRs, compulsory deductible, calculations of sum insured and applicable depreciation, no claim bonus grid, and standard forms prescribed for proposal forms, policy wordings and policy schedule.
A summary of the key changes proposed by the Working Group is provided below:
- Calculation of Sum Insured and
The Working Group has recommended that the sum insured for brand new cars be calculated based on a combination of the on-road vehicle price, the manufacturer accessories, and road tax/registration number. Following the expiry of the three year policy term for new vehicles, ie, for motor vehicles aged between four to seven years, sum insured calculation shall be subject to a depreciation between 40% - 60% in accordance with the age of the vehicle. For motor vehicles aged eight years and upwards, the depreciation value and the sum insured shall be calculated based on the mutual agreement between the Insurer and the Insured. The Working Group has also recommended a depreciation rule to be applied at the time of claim settlement, based on the age of the vehicle.
The Working Group has recommended adopting telematics for motor insurance to enable capture of data related to individual driving habits and patterns, and draw up a risk profile of the driver. It has also suggested the creation of a central repository of telematics data with the IIB. The Working Group has suggested that telematics will help Insurers to provide customised solutions to the customers in the nature of 'Pay as you Drive', 'Pay how you Drive' and 'Usage based Insurance'.
- Standardised grid for no claim bonus
The Working Group has recommended a standardised NCB grid for long term motor insurance policies.
- Named Driver Insurance
The Working Group has recommended 'Named Driver Policy' where the insurance policy provides coverage only for drivers specifically named on the policy, and not for any persons driving the vehicle, including the Insured.
- Insurance for
The Working Group has recommended to have in-built coverage for accidental medical expenses (indemnity basis) for all occupants traveling in motor vehicles, in compliance with their registered seating capacity. The coverage proposed is Rs.25,000 per person, irrespective of the category of vehicle.
- Compulsory Deductibles to be "Standard
The Working Group has recommended changing the name of 'Compulsory Deductibles' to 'Standard Deductibles'. The Working Group has also recommended no waiver of the standard deductibles, and has suggested compulsory deductibles for all vehicles to be calculated on the basis of percentage of the applicable sum insured, and subject to a maximum and minimum limit.
In the year 2019, the IRDAI has also taken steps to bring technological innovations in the motor insurance segment, for instance, linking of motor insurance premium with traffic violations and implementation of telematics to provide customised solutions to customers. The IRDAI's committee for regulatory sandbox has also approved a motor insurance product where calculation of premium is based on the distance travelled by a motor vehicle.
A plethora of changes were also introduced in the regulatory framework for motor insurance, including introduction of standalone motor OD cover for private vehicles, application of norms governing insurance advertisements to POSPs and MISPs, and a proposal to amend the existing framework governing motor insurance as presently set out under the IMT. The IRDAI also brought much needed clarity with respect to applicable TP cover in the event of transfer of motor vehicles and total loss claims. Statutory amendments to the MV Act now require Insurers to provide for cashless treatment of road accident victims mandatorily, but also permit Insurers to deny TP claims where insurance premium is unpaid or the driver does not hold a valid driving license/permit.
With the pace of developments in the technology and automobile space, it is still to be seen how these changes will drive innovation in the Indian insurance industry. However, the IRDAI's actions are seen by many as a positive step towards bridging the gap between the end consumer's expectations and the insurance solutions presently available to the public.
1. IRDAI's order on "Premium Rates for Motor Third Party Liability Insurance Cover for the Financial year 2019-20 effective from 16th June, 2019" of 4 June 2019.
2. Circular on "Cover for Motor Own Damage risks for Cars and Two-wheelers" of 21 June 2019.
3. Circular on "Implementation of the Directions of the Hon'ble Supreme Court of India in the matter of WP No. 295/2012 of Shri S Rajaseekaran vs Union of India and Ors" of 28 August 2018.
4. Circular on "Clarification: Issuing Long term Motor Products – private car and two wheelers" of 11 July 2019.
5. Circular on "Cover for Motor Own Damage risks for Cars and Two-wheelers" of 21 June 2019.
Circular on "Working Group to examine and recommend linking of motor insurance premium with traffic violations" on 6 September 2019.
7. Circular on "Misuse of Total Loss Accident Vehicle Documents over Stolen Vehicles" of 25 July 2019.
8. §164B of the MV Act.
9. §147(2) of the MV Act.
10. §149 of the MV Act.
11. §150(2) of the MV Act.
12. §162 of the MV Act.
13. "Exposure Draft – Revisiting the product structure for Motor Own Damage" of 25 November 2019.
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