Third-party liability to make two-wheelers dearer

Come July 1, two-wheelers will become dearer by about Rs 2,000. This follows two-wheeler owners having to compulsorily buy long term third-party liability cover of 15 years in states and union territories where a one-time road-tax is collected by Road Transport Offices (RTOs).

This was announced by the Tariff Advisory Committee (TAC) recently as a measure to ensure that two-wheeler owners insure their vehicles against third-party liability.

About six million two-wheelers ply on Indian roads every year. It is only in the first year of registration that the two-wheelers are insured.

"Subsequently a significant portion of them remain uninsured. Considering the number of two-wheeler accidents that take place every year, compulsory insurance cover will help," said senior insurance company officials.

Third-party annual cover for two-wheelers is about Rs 185, which includes Rs 135 towards third-party plus Rs 50 for the driver. Considering the 30 per cent discount being offered on taking a 15-year policy, this would amount to a one-time payment of about Rs 2,100.

Once issued, the long term policy for two-wheelers will not be cancelled, except in the case of cancellation of registration of the vehicle by the RTO. Even then, there will be no refund on the premium paid, stated TAC in its notification.

"A significant percentage of two-wheelers tend to be not covered by third-party liability after the first year of registration. The introduction of the long-term-only policy for these vehicles will help to curb this practice," said senior officials with a public sector insurance company.

In states and union territories where one-time tax is not compulsory, the insured may be given an option to either choose an annual cover or a long-term cover, which would coincide with the validity period of the vehicle's registration. This could vary between three to 15 years and accordingly a discount between five to 30 per cent will be applicable.

Meanwhile some insurance companies feel that this move could have a negative impact on an individual company's bottomlines considering the high compensations made under third party.

"There is no cap or limit and with inflation rising and the fact that earning capacities are going up, we would experience high liabilities without having the protection of increasing premium amounts," said a senior claims manager at a public-sector insurance company.

Recently, one public sector insurance company was forced to pay a compensation of Rs 14 crore towards third-party liability when a businessman was run over by a car insured by the insurer.

As the victim's family was able to prove that the businessman had an earning capacity of Rs 1.5 crore, the court awarded the family a compensation of Rs 14 crore.