With the losses of general insurance companies mounting due to the obligatory third-party insurance on motor vehicles, the finance ministry is planning to move an ordinance to address this.
A Motor Vehicles (Amendment) Bill, 2012, prescribing the conditions for insurance in the case of death or injury to a third person in a road collision is already before Parliament. The Rajya Sabha has cleared it and the Lok Sabha is expected to take it up in the next session. However, the finance ministry believes this Bill's provisions on the subject of capping the liability of insurers to pay in such cases need to better reflect its point of view in this regard.
It has sought the law ministry's opinion on a Motor Vehicle Insurance & Compensation ordinance and whether this could be issued right after the Bill before Parliament is passed.
"As long as the Motor Vehicle legislation is there in Parliament, we cannot introduce our Bill. Once it is cleared by the Lok Sabha, we will bring in an ordinance for a separate legislation and when Parliament convenes next, the Bill (replacing the ordinance) will be tabled," a finance ministry official told Business Standard.
Third party motor insurance protects the vehicle owner from any financial liability in case of death or injury to a third person. Insurance companies, which are bound by law to settle the claims with no cap on liability, paid out 45 per cent more than the premium on account of claims under the third party motor pool last year.
The new law is expected to propose a cap on third party motor insurance claims.
At present, insurance companies cannot even increase the premium on such policies. The Insurance Regulatory and Development Authority (Irda) had issued an order in March to increase premiums on third party motor insurance by six to 40 per cent. Soon after, transporters moved the high court at Kolkata against the increase in premium and Irda's order was quashed.
The issue is likely to be taken up in a meeting between general insurance companies and Finance Minister P Chidambaram later this month. "Companies are saying de-tariff the premium. Except Scandinavian countries, no other country has it. State-run general insurers are bleeding and the matter needs to be resolved," said an official.
The annual liability on account of third party motor insurance is Rs 10,000 crore, with average third party claim on each accidental death and injury coming to Rs 3 lakh and Rs 1 lakh, respectively. Public sector general insurers are hit harder as private insurance companies avoid writing such policies due to a high claim ratio, particularly in the commercial vehicle space.
Earlier this year, after a meeting of insurers with then Finance Minister Pranab Mukherjee, the finance ministry had discussed the issue with the ministry of road transport and highways.
An option to take off motor insurance from the Motor Vehicles (Amendment) Bill was considered that time, too, but since the law was already in Parliament, the finance ministry did not move forward.
The Bill proposed a cap of Rs 10 lakh on third party compensation in case of death of a working person. It suggested a compensation of Rs 50,000 for grievous injury and Rs 20,000 for non-grievous injury.