Posted on January 3, 2019 by PINC Insurance

India’s booming economy has seen its roads get wider, longer and much fuller. Every year scores of new vehicles join the already plying ones on Indian roads, driving the automobile industry to new places – some great ones, and some not so great ones. With the automobile industry growing we’ve seen an unprecedented growth in the motor insurance industry as well, mostly due to the mandated insurance requirements. This growth has been in check though for various reasons. As the insurance industry has been growing in leaps and bounds, industry estimates put the general non-life insurance sector to grow at 17-20% this year. The industry has seen the non-life insurance premiums swell to USD 17.49 billion or 22.05% of the insurance premiums in India during the year 2016. Motor vehicle insurance will be one of the major factors in ensuring this tremendous growth, and has led to about 39% of this. However it’s a notch down from the 44% share of non-life insurance, motor has had in the previous fiscal. Motor insurance grew from Rs. 42,300.86 crores to Rs. 50,250.53 crores. The overall growth is a great cause for optimism in the motor insurance industry. On the flip side out of 18 crore motor vehicles registered in India, a whopping 12 crore are uninsured according to the latest industry data. While this might seem shocking, insurance companies have known for a while about the growing problem of uninsured vehicles plying on Indian roads. To compound matters, 50-70% of the uninsured are two wheeler vehicles while about 30% are four wheeler vehicles. Indian laws require all new vehicles to be sold with a proper insurance, but the issue arises at the time of renewals. Most people simply don’t do so, and insurance companies can do little to track down the non-compliant vehicles. Even the Road Traffic Office has very little control over ensuring active vehicles stay insured. It might not seem like much of a problem until you realise the country had 1,50,935 road accident deaths in 2016, while 2017 saw 1,46,377 people die due to road accidents. This is the major cause of concern as when vehicles are uninsured for 3rd party losses, victims of accidents or their families are often left with no respite.

Changes In Third Party Insurance Laws

In wake of these alarming facts, the regulations around motor insurance, and more specifically 3rd party motor insurance are getting more stringent. The Government of India increased the 3rd party death claims limit to Rs. 5 lakh in May 2018. This move has insurers looking at Rs 10,000 to Rs 25,000 crores of losses over the next few years, and could see 3rd party motor insurance premium rates go up by 20-30%. It will however be a big relief to people who might fall victim to motor vehicle accidents.

There is also the Motor Vehicles (Amendment) Bill that is pending in the Rajya Sabha. The bill on the whole will come to the aid of victims by allowing higher claim amounts, put more stringent rules on breaking traffic rules, and set a time limit for filing 3rd party claims. Currently there is no time period fixed for 3rd party claims, and if passed, insurance companies will get a bit of a breather as the number of fraudulent claims will go down. Currently the motor insurance industry has one of the highest claims ratio, affecting profitability of the sector. Motor vehicle insurance saw its claims ratio increase from 81.18 in 2016 to 88.17 in 2017. The bill will also help remove several sub-standard vehicles from roads, helping to reduce the likelihood of accidents.

The Supreme Court has also raised more concerns. It has directed a road safety panel to ascertain how victims of road accidents due to potholes and damaged roads should be compensated. Additionally, current laws only require the vehicle to be insured for a year. Among the changes mandated by the Supreme Court are longer 3rd party insurance periods for premiums to be paid. It has set two wheelers to 5 years, while four wheelers have been set to 3 years to improve coverage of 3rd party victims. There may also be an additional responsibility on insurance companies to ensure vehicles have valid PUCs before giving them insurance policies. This has insurance companies a bit worried as that is a heavy burden to bear.

An All India MIB To Keep Tab

The industry is responding to the impending changes in the best way it knows, by planning ahead through proper risk aversion & calculation. The General Insurance Council is working on setting up a Motor Insurance Bureau (MIB) to keep track of vehicles that do not renew their third-party insurance, mandatory under the law. The data will help insurers approach the vehicle owners and have them covered, and will be utilised by local police authorities as well as regional transport authorities so they can act in case vehicles ply uninsured. The central database being created of all registered vehicles will help keep a tab on whether vehicles renew their covers – both third party and own-damage. To start with, the MIB will establish a list of all vehicles that are insured during a particular year. In the coming years they will compare the data with the ones that renew their cover. The ones that do not will have appropriate action taken against by the concerned authorities. The MIB is looking at ways and means of collating the data and processes to share the data, since all insurers will have to share details of third party policies sold.

As it stands the motor insurance sector is set for a major shake-up in the short term. However, improved legislation and data tracking will help the industry maintain and improve premium renewals while reducing the overall claims ratio being faced by the motor insurance industry. This will see the industry grow better than ever before.

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