Article by Celia Jenkins and Priya Misra
Motor insurance is one of the major segments of general insurance business in India and has, per the IRDAI's report of September 2017, contributed to almost 39% of the total general insurance gross direct premium collections in the year 2016-17. Further, per the Motor Vehicles Act 1988 (MV Act), it is mandatory for all vehicles plying on public roads to be insured under a third party liability insurance, which is issued by an Insurer in compliance with the provisions of applicable law.
Only an Insurer registered with the IRDAI under the Insurance Act 1938 (Insurance Act), is permitted to carry on the business of an insurance company in India. Furthermore, Insurers registered in India, are permitted to offer only those products which are approved by the IRDAI or filed with the IRDAI in advance, under the applicable product filing procedures. There are separate sets of procedures and requirements for life insurance and general insurance products. Particularly, in the context of motor insurance products, there are additional provisions which apply.
Motor insurance products are classified "tariffed" products which are governed by the Indian Motor Tariff and Indian insurance companies wishing to offer motor insurance products are required to adhere to the exact terms, conditions and exclusions specified under the Indian Motor Tariff and use the policy wordings and endorsements prescribed for the erstwhile tariff classes of insurance covers. Insurers are also required to charge insurance premium for third party liability motor insurance policies as determined by the IRDAI, every year.
The collective effect of the extant regulatory framework is that, in India, base motor insurance products are standard products and Insurers do not have much flexibility with respect to the terms, design and pricing of the product. The IRDAI has, however, permitted certain relaxations in the terms and conditions of coverage of the erstwhile tariff classes pursuant to which Insurers are permitted to file add-on covers over and above the erstwhile tariff covers in fire, engineering, IAR and motor own damage with appropriate additional premiums being charged.
Therefore, an Insurer is required to use the policy wordings and endorsements prescribed for motor insurance. Insurers are permitted to file add-on covers over and above the standard wordings with appropriate additional premium.
Meanwhile, across the globe, motor insurance is undergoing change with technology being utilised to determine the pricing for motor insurance policies. Telematics is one such technology. Broadly, it refers to the integrated use of telecommunications and information technology for vehicles which is used to provide services such as vehicle tracking, roadside assistance, and real-time navigation, with an objective of having a pricing methodology that reflects the actual risk to which a customer exposes his or her vehicle. Telematics involves fitting the vehicle proposed to be insured, with a small device that relies upon GPS technology and sensors to accurately capture data, such as- speed patterns, idle time, number of vehicles on road, weather situations, type of roads the driver has been on and journey time.
Telematics has not yet picked up in India, as here the premiums for third party motor insurance are already fixed by the IRDAI and Insurers presently do not have the liberty to deviate from such prices. However, it is promising that the IRDAI has issued a discussion paper on "Telematics and motor insurance" of 3rd August 2017 (Discussion Paper) to obtain the comments from various stakeholders on the introduction of telematics in motor insurance in India. No direction has, however, been issued pursuant to the notification of the Discussion Paper. This, in some manner, limits various new age Insurers from being able to utilise telematics in India.
With losses in motor insurance predicted to increase, the need of the hour to facilitate evolution of motor insurance, is that the law makers have a re-look at the statutory and regulatory framework governing motor insurance in India. In this regard, it is relevant to note that the Motor Vehicles (Amendment) Bill 2016 (Amendment Bill) is proposed to be taken up this monsoon session of the Rajya Sabha. The Amendment Bill proposes to prescribe an upper limit of liability of the Insurer to an extent of Rs.10 lakh in respect of death and Rs. 5 lakhs in respect of bodily injury arising out of motor vehicle accident. In the event the Amendment Bill is notified in its present form, it may further lead to a decrease in the motor insurance premiums.
Optimum development of the insurance industry will be enhanced when the law evolves to support innovation in technology which can lead to introduction of new-age motor insurance products. With changes to the MV Act on the anvil, it is the opportune time for the regulatory provisions governing motor insurance in India to be reviewed along side, to facilitate the growth of motor insurance in India which benefits not only the public, but also the Insurers.
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