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Accidents could get a lot costlier for car owners.
General insurance companies are trying to transfer a greater quantum of liability to car owners for damages caused by their vehicles to third parties in accidents. At present, according to the Motor Vehicles Act, an insurer has to initially pay third parties, and later recover the amount, if the claims are absolved.
Motor third-party insurance covers the liability of a vehicle owner to a third party in an accident. This is mandatory. The “own-damage” insurance, which covers losses to the car owner, is optional.
Senior officials in the insurance sector said if their suggestion was incorporated in the Road Transport and Safety Bill, 2014, insurers would still have to pay the claim, but the owners of cars would bear a higher quantum of the liability.
According to the Motor Vehicles Act, if the amount that the insurer is liable to pay is less than the amount to which a person with a third-party insurance become liable for, then the insurer can recover the excess amount from the person.
At present, there is, however, no limit to an insurer’s liability in third-party motor insurance. The policy holder can claim any amount and if the insurer refuses to pay, it can be dragged to court.
The insurance sector estimates suggest that there has been a 15-20 per cent rise in the quantum of compensation awarded by the courts every year.
Now, the liability of an insurer would be limited to Rs 15 lakh in third-party motor insurance. Those seeking a higher liability cover would have to pay a hefty premium to the general insurance companies.
If this proposal is accepted, car owners would have to pay the whole amount they become liable for to the third party concerned while they will be able to recover only a fixed sum from the insurer, if they have a standard third-party product.
According to the draft Road Transport and Safety Bill, 2014, the maximum compensation to an insured person that an insurer is liable for would be Rs 15 lakh. According to the revised draft of the Bill, any insurance policy issued before the Act is passed and not conforming to it would have to be redrafted within three months of the law being notified.
