Will Motor Vehicle (Amendment) Bill 2016 impact two-wheeler insurance? Here’s what you need to know

Last year, the Insurance Regulatory Development Authority of India (IRDAI) found out that 75% of two-wheelers on the roads were not insured despite being mandatory to have one. The low popularity of two-wheeler insurance means that in the case of any loss or damage to the vehicle or third-party, all the expenses have to be borne by the vehicle owner himself.

The Union cabinet has approved the Motor Vehicle (Amendment) Bill 2016, to uplift the road safety standards in the country. The law in the making deals with some issues, the problem of a small number of subscriptions to car insurance, being one of them.  Here are a few changes proposed.

Source: The Economic Times  

It is to be noted that the penalty in hit and run cases has been increased from Rs 25,000 to Rs 2 lakh. Also, a special provision has been made for the payment of compensation of up to Rs 10 lakhs in case of road accidents

How will the new motor act impact two-wheeler insurance sector?

The bill not only seeks to ensure the commuter’s safety but also increases the penalty for driving without two-wheeler insurance. This move is likely to popularize two wheeler insurance policies which are way too underrated in India. Also, no differentiation would now be made between private and public vehicles. Hence, it will be compulsory for the government-owned vehicles to buy at least third-party insurance. Further, in the case of vehicle transfer, it is imperative for the owner of the vehicle to inform the insurer within 15 days of the transfer to initiate the process of transferring the insurance policy.

The motive behind high penalties or fines is to encourage safe driving among people. For instance, if you are caught driving without a license, you have to shell out Rs 5000. Similarly, the drunk driving penalty has been raised to Rs 10,000. Also, driving without helmets may lead to a fine of Rs 1000 along with the disqualification of driving license for three months. All these initiatives intend to encourage safe driving which indirectly can lower the insurance premium for bikes and cars too. Safe driving and fewer accidents would naturally translate into lesser claims. As a result, a policyholder has better chances of earning no claim bonus (NCB). NCB or No claim bonus is given to policyholders who haven’t made a single claim in the previous policy tenure.

However, the fewer claim cases don’t mean that one can drive without a valid insurance policy as the fine for driving without insurance is now raised to Rs 2000.

The bill makes it mandatory for the insurers to pay the compensation within a month of the receipt of the settlement record. The Motor Vehicles (Amendment) Bill has made the provision to facilitate cashless treatment during the golden hour. The golden hour is the crucial period of the 45 minutes post the accident during which one needs quick medical aid. The bill proposes to set up an accident fund, which can be used to meet the medical expenses of victims till they get stabilized. The fund will be created by collecting cess, grants, and a loan from the center. In the case of accident victims having insurance, the payment made by the government will be deducted from the total claim amount received from the insurer.

Moreover, the Central Government is empowered to fix the premium and corresponding liability of the insurance company after consulting IRDAI.

As per the new section 147 (2), the liability fixed by the government shall not be more than Rs 10 lakh in respect of death and Rs 5 lakh in case of serious injuries. It means, in any case, victims may not be able to realize more than Rs 10 lakhs. Any excess amount will have to be paid by the owner or driver. At present, the insurer’s liability is unlimited in case of claims arising due to injury or death.

The Bottom line

Sometimes, it is not the happiness of rewards, but the fear of fines and penalties which encourage people to improve their way of life.  The same is true in the sense of two-wheeler insurance too. To make roads safer, the bill resorts to heavy penalties as a deterrent to traffic violations. This will also encourage more people to buy two-wheeler insurance in the country. The fear of high fines for driving without insurance may encourage people to opt for one.