Executive Summary

In todays modern world everything has become far more advanced and therefore insurance plays a very vital role in every field and aspect of life. It is oriented towards the growth of nation but also common man in general. Every transaction that takes place has an aspect of banking and insurance involved in it. All the industries that are existing today are all related to the banking and insurance activities. Thus you can say that banking and insurance acts as a focal point for all activities. Why is insurance necessary? The question contains the answer within itself. After all, life is fraught with tensions and apprehensions regarding the future and what it holds for the individual. Despite all the planning and preparation one might make, no one can accurately guarantee or predict how or when death might result. Motor Insurance is one of the largest non-life insurance businesses in the world. This is because it is statutorily mandated in most parts of the world. All motor vehicles are required to be registered with the road transport authorities and insured for third party liability. There are different classifications of vehicles and risks associated with each are different and the tariffs are decided by the Tariff Advisory Committee based on such a classification. The basic premise is that motor vehicles could either cause injury or be a subject of damage and injury, and thus require insurance.

The Motor Vehicle Act of 1939 introduced compulsory insurance to take care of those who might get injured in an accident. Motor Insurance is more of a hedging mechanism rather than a real investment avenue. It is essentially a mechanism that eliminates risks primarily by transferring the risk from the insured to the insurer. The chances for a fatality or an injury to occur to the average individual may not be particularly high but then no one can really afford to completely disregard his or her future and what it holds. Therefore, Motor Insurance is mandatory for all new vehicles be it for commercial or personal use. Insurance companies are coming out with comprehensive policies for its customers.

Introduction
Motor Insurance is one of the largest non-life insurance businesses in the world. All motor vehicles are required to be registered with the road transport authorities and insured for third party liability. The basic premise is that motor vehicles could either cause injury or be a subject of damage and injury and thus require insurance. The Motor Vehicle Act of 1939 introduced compulsory insurance to take care of those who may get injured in an accident. There has been a phenomenal rise in the motor accidents in the lat 45 years. Much of these are attributable to a sudden spurt in the number of vehicles. There is a danger at every corner when it comes to Indian roads. Therefore, every vehicle being driven on roads has to be compulsorily insured. Legally, no motor vehicle is allowed to be driven on the road without valid insurance. Hence, it is obligatory to get the vehicle insured. Motor insurance policies cover any loss or damage caused to the vehicle or its accessories due to the natural and man made calamities like fire, explosion, earthquake, flood, burglary, theft, riot, strike, malicious act etc. Motor insurance provides compulsory personal accident for individual owners of the vehicle while driving. One can also opt for a personal accident cover for passengers and third party legal liability. The third party legal liability protects against legal liability arising due to accidental damages. It includes any permanent injury or death of a person and damage caused to the property.

It represents a combined coverage of the vehicles including loss or damage to his property or life and the third party coverage. We read everyday in the newspapers about accidents, bomb explosions taking place. 30 out of 100 vehicles meet with accidents on the road. You step out of your house and at every moment encounter number of risks that one cannot imagine. What is worrying for all of us is not the operation of those risks but the operations that are accidental, unforeseen and external. There is hardly any industry i.e. manufacturing activity or service organization that does not come within the scope of General Insurance. Risk is inherent aspect of human life whether individual or organization. Without risks there cannot be progress. Occurrence of uncertainty cannot be predicted. Insurance is one certain way of dealing with uncertainties because risk arises out of uncertainty and is a pervasive force in the world.

History of Motor Insurance

Motor Insurance had its beginnings in the United Kingdom in the early part of this century. The first motor car was introduced into England in 1894. The first motor policy was introduced in 1895 to cover third party liabilities. By 1899, accidental damage to the car was added to the policy, thus introducing, the comprehensive policy along the lines of the policy today. In 1903, the Car and General Insurance Corporation LTD was established mainly to transact motor insurance, followed by other companies. After World War 1, there was a considerable increase in the number of vehicles on the road as also in the number of road accidents. Many injured persons in road accidents were unable to recover damages because not all motorists were insured. This led to the introduction of compulsory third party insurance through the passing of the Road Traffic Acts 1930 and 1934. The compulsory insurance provisions of these acts have been consolidated by the Road Traffic Acts 1960. In India, the Motor Vehicles Act was passed in 1939 introducing the law relating to compulsory third party insurance. The practice of motor insurance in India generally follows that of the U.K. market. The business is governed by a tariff, whereas in U.K. the tariffs have been withdrawn. The Motor Vehicles Act 1988 has replaced the earlier 1939 Act, and it became effective from 1st July 1989.

Meaning
Motor Insurance is insurance where consumers can purchase for cars, trucks and other vehicles. Its primary use is to provide protection against losses incurred as a result of traffic and car accidents. An insurance company may declare a vehicle totally destroyed (totalled or write-off) if it appears replacement would be cheaper than repair. It is a comprehensive policy that not only covers you against third party but also against accidents, damage, injury and much more. Motor Insurance is a legal requirement if you want to drive your car on public roads. However, this doesnt mean there arent still ways to save money, even if you dont belong to one of the traditionally safe group of drivers. The type of insurance you take out, along with the type of driver you are, combining to provide the overall likelihood that you will be able to get a cheap quote. Compulsory Motor Insurance results in lowering the disposable income or it results in a shift of income from lower group to the higher group. If it is not made compulsory, there is a strong possibility that some may not buy these voluntarily. This is because most of them think that the cost of accidents or losses will fall on others or they underestimate the risk of loss. Also, Compulsory insurance would encourage people to drive safely which may reduce the cost of risk.

Need for Motor Insurance

In Indian conditions the vehicles are subject to many hazards like potholes, puddles, traffic management system, jaywalkers, increasing number of accidents etc. which accentuate the need for automobile insurance. Some of these hazards are discussed below:

Footpaths: As footpaths are occupied by hawkers, pedestrians have a tough time dodging between vehicles to reach the other end of the road. Large potholes during monsoons can worsen the situation causing damage to the vehicle.

Drunken Driving: It is another major reason for increase in accidents, be it a car, two-wheeler or even a truck. Reckless Driving: Majority of the youngsters drive recklessly caring little for the law, causing serious accidents resulting in loss of life or limb.

Fire: There is also a danger of fire or theft of vehicle Therefore, motor insurance under such unsafe conditions is a must not only to cover risks towards the owner and the vehicle but also to cover the financial liability that may arise from an accident in which the other party is injured or the cost of repairs that you may have to pay to other party in case of an accident.

Theft: Cases of stolen cars on the rise. Experts in stealing cars are well aware of the loopholes that can be exploited and accordingly have been successful in manipulating with the chases no. of vehicles in order that they are not traced.

Principles of Motor Insurance

1. Principle of Utmost good faith: Contracts of motor insurance

are governed by the doctrine of utmost good faith. It is the name of a legal doctrine which governs insurance contracts. Under utmost good faith contracts if there is a violation it is categorized as a material misrepresentation, a breach of a warranty, or concealment. Some examples of material facts in motor insurance are the type of vehicle, the geographical area of use, the physical condition of the driver, the driving history of the driver etc.
2. Principle

of Contract of Indemnity: The principle of

indemnification is that the insured should not profit from the policy. This does not preclude that the insured will suffer some loss. In fact, many policies include a deductible which guarantees that the insured will pay part of each loss himself. In the event of total loss of the vehicle, insurers pay the market value of the vehicle at the time of loss or the sum insured whichever is less. If vehicle is damaged, the cost of repairs is paid, but if old parts are replaced by new, a suitable depreciation is charged on the cost of new parts.
3. Principle of Insurable Interest: Insurable Interest is one

wherein loss would be suffered from an adverse occurrence to the person insured. In motor insurance, the vehicle is the property which is exposed to loss or damage. The insured also has a legal liability towards third parties; he may suffer financial loss if he incurs that liability caused by negligent use of the
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vehicle. Therefore, the insured has insurable interest which entitles him to insure the vehicle against damage and liability risk. Motor policies are extended to indemnify persons other than the insured in respect of third party liability. Although owner insured has, no insurable interest in any such liability, he is deemed as having acted as an agent in arranging the indemnity on behalf of other persons who may drive the vehicle and incur liability. Otherwise, the injured third parties will have no recourse to recover damages.
4. Principle of subrogation: Subrogation is the transfer of the

rights from the insured to the insurer when the loss or damage to the vehicle is caused by the negligence of another person. Insurers exercise the right to cover the loss from the person responsible. Subrogation operates only after the claim is paid.
5. Principle of contribution: It arises when there is double

insurance, that is, when the same vehicle is insured under two policies. The contribution condition is specially worded in private car policies because the owner is also covered for the third party liability while driving cars not belonging to him.
6. Proximate Cause: In this, the loss or damage to the vehicle is

indemnified only if it is proximately caused by one of the insured perils. The doctrine also applies to third party claims. The third party injury or property damage must be proximately caused by the negligence of the insured for which he is held legally liable to pay damages.

Classification of Motor Vehicles

For the purpose of insurance Motor Vehicles are classified into the following categories: 1. Private Cars: Vehicles used solely for social, domestic and pleasure purposes.

Cars of private type including station wagons, used for domestic, business and professional purposes of the insured or used by the insureds employees for such purposes.

Three wheeled cars (including cabin scooters used for private purposes)

2. Motor Cycles and Motor Scooters: Mechanically propelled two wheelers with or without side car. Mechanically propelled three wheelers with engine capacity. 3. Commercial Vehicles:

Goods carrying vehicles. Passengers carrying Vehicles e.g. motorized rickshaws, taxis, buses.

4. Miscellaneous and special types of Vehicles: Agricultural tractors and fire tenders and salvage corps. Hearses, ambulances, cranes, excavators Cinema film recording and publicity vans

Garbage dumping trucks, road rollers etc.

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Types of Motor Insurance Available

1. Two Wheeler Insurance: Two wheeler insurance provides a

kind of personal accidental cover for owners, while driving the vehicle. The policy generally provides protection from any loss or damage to the vehicle arising out of natural calamity like fire, injury, burglary etc. The amount insured will depend on the current showroom price multiplied by the depreciation rate fixed by the Tariff Advisory Committee at the time of commencement of policy period. Fast and easy claim process by most insurance companies will ensure existing customer loyalty and widen the customer base.
2. Car Insurance: Car insurance is the fastest growing

segment in the auto insurance category. This is because insuring car is mandatory for everyone buying a new car. Car insurance includes loss or damage by accident, third party insurance, insurance against burglary etc. The amount of premium will depend on the make and value of the car, state where the car is registered, year of manufacture etc.
3. Commercial Vehicle Insurance: This covers all vehicles

not used for personal purpose. Trucks and heavy motor vehicles are covered under this insurance. This insurance protects against damage caused due to accident, third party injury etc. The premium amount depends on a number of factors like showroom price of the vehicle at the commencement of the insurance period.

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Motor Vehicle Act

In India the Motor Vehicles Act was first introduced in 1939 and later it became effective from 1st July 1989. It introduced the law relating to compulsory insurance of any motor vehicle that plies in public places. Motor Vehicles Act states that every motor vehicle plying on the road has to be insured, with at least Liability only policy. There are two types of policy one covering the act of liability, while other covers insurers all liability and damage caused to ones vehicle. Since a single policy cannot meet all the insurance objectives, one should have a portfolio of policies covering all the needs. Some of the provisions of the Act provide the following matters: Rationalisation of certain definitions with addition of certain new definitions of new types of vehicles. Stricter procedures for grant of driving licences and period of their validity Laying down of standards for the components and parts of motor vehicles.

Provisions for issuing fitness certificates of vehicles also by the authorized testing stations.

Enabling provision for updating the system of registration marks. Maintenance of state registers for driving licenses and vehicle registration and constitution of Road Safety Councils. Standards for anti-pollution control devices.

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 Seeking to provide for more deterrent punishment in cases of certain offences. Liberalized schemes for grant of All-India Tourist permits as also national permits for goods carriages. The liabilities that require to be covered under this Act are:

Any liability arising in respect of death or bodily injury to any person including the owner of the vehicle or his authorized person in the carriage.

Any liability incurred in respect of damage to any property of a third party. Any liability incurred in respect of the death or bodily injury of any passenger of a public service vehicle. Any liability arising under Workmens Compensation Act, in respect of injury or death of: A paid driver of the vehicle Conductor or ticket examiner Workers carries in a goods vehicle.

Any liability for bodily injury or death of passengers who are carried for reward or hire by reason of a contract of employment.

The policy should carry a no fault liability limited to a sum of Rs 50,000 in case of death, Rs 25,000 in case of permanent disability and Rs 6,000 in case of damage to property.

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Laws and Regulations

The classical scene on Indian roads is that of arrogant drivers bullying over safe drivers. Trucks, buses, cars, two wheelers and three wheelers all wedging in between other vehicles, try to race ahead, at traffic signals and in between signals. With their hands on the steering wheel, most drivers feel they own the roads. For these drivers traffic rules are silly and kill the joy of driving a vehicle. More than 35 million registered vehicles traffic a network of around 3 million kms of roads in India. The Indian roads see more than 3 lakh road accidents that kill more than 65000 people and injure another 3 lakh. The most appalling fact is that, most accidents happen due to sheer ignorance amongst drivers and vehicle owners of basic rules for Indian roads. Therefore, better knowledge of rules and regulations could help everyone on the roads. The RTO office enforces the law on Indian roads, and the law that governs the Indian roads are the following: The Motor Vehicles Act (MVA) 1914/ 1939 AND 1988- The law for operation for all Motor Vehicles in India. The Central Motor Vehicles Rules (CMVR) 1994- Rules that stipulate various procedures with reference to the MVA 1988. The State Motor Vehicles Rules- Rules framed by various state governments in accordance with the MVA and CMVR to suit local conditions of the State.

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Rules and Regulations in relation to Motor Insurance: Driving Licence (Section 14 Motor Vehicles Act): An appropriate driving licence is required if you want to drive a motor vehicle anywhere in India. A drivers licence issued by the competent authority of any state/union territory is valid throughout the Indian Union. International Driving Permit (IDP) can be issued by any RTO or motoring associations, like The Western India Automobile Association, authorised by the Government. The period of validity is one year. You must carry your driving licence on your person at all times; a photocopy of the driving licence is not acceptable. Registration, where to be made (Section 40 of Motor Vehicles Act): Subject to the provisions of section 42, section 43 and section 60, every owner of a motor vehicle shall cause the vehicle to be registered by a registering authority in whose jurisdiction he has the residence or place of business where the vehicle is normally kept. Registration, how to be made (Section 41 of Motor Vehicles Act)
An application by or on behalf of the owner of a motor vehicle

for registration shall be in such form and shall be accompanied by such documents, particulars and information and shall be made within such period as may be prescribed by the Central Government.
The registering authoring shall issue to the owner of a motor

vehicle registered by it a certificate of registration in such form and containing such particulars and information an in such manner as may be prescribed by the Central Government.

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 In addition to the other particulars required to be included in the certificate of registration, it shall also specify the type of the motor vehicle, having regard to the design construction and use of it, by notification in the Official Gazette. The registering authority shall enter the particulars of the certificate in a register to be maintained in such form as may be prescribed by the Central Government.
The registering authority shall assign to the vehicle, for display

thereon, a distinguishing mark referred to as the registration mark followed by such letters and figures as allotted to the state and displayed and shown on the motor vehicle in such form as may be prescribed by the Central Government.
A certificate of registration in respect of a motor vehicle, other

than a transport vehicle, shall, subject to the provisions contained in this Act, be valid only for a period of fifteen years from the date of issue of such certificate and shall be renewable. Alteration in Motor Vehicle (Section 52 Motor Vehicles Act): No vehicle can be altered to an extent that the particulars containing in the registration certificate are no longer accurate. Before doing any alterations, it is necessary to have permission of the concerned RTO. After carrying out the alteration, the owner must forward the registration certificate to the RTO within 14 days, for making necessary corrections.

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Cancellation of registration (Section 55 of Motor Vehicles Act) If a motor vehicle has been destroyed or has been rendered permanently incapable of use, the owner shall, within fourteen days or as soon as may be, report the fact to the registering authority within those jurisdiction he has the residence or place of business where the vehicle.
The registering authority shall, cancel the registration and the

certificate of registration, or, if it is not, shall forward the report and the certificate of registration to the original registering authority and that authority shall cancel the registration. A registering authority cancelling the registration of a motor vehicle under section 54 or under this section shall communicate such fact in writing to the owner of the vehicle, and the owner of the vehicle shall forthwith surrender to that authority the certificate of registration of the vehicle. The colour scheme for Non Transport vehicles (Section 118 Motor Vehicles Act): Permanent Registration- White on Black plate Temporary Number- Red on Yellow Plate Fancy lettering, raised or shining metal numbers are not permitted. The plate should not have any line, or colour, or any other kind of marking on it.

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Car Registration Mark (Rules 50, 51 Central Motor Vehicles): The registration number displayed must confirm to following specifications: Letters: 4.5 cm high/1 cm thick Numerals: 6 cm/ 1 cm thick Space between letters/ numerals should not be less than 1 cm. Lamps and additional lights (Rules 105-108,111 Central Motor Vehicles Rules): Spotlights, search lights, fancy lights, mercury lamps are expressly forbidden. Dome lights are not permitted unless specially authorised. A reversing white light is permitted provided the light is diffused and not too bright. Rear View Mirror (Rule 125 Central Motor Vehicles Rules): Every motor vehicle, except motor cycles, must be fitted with a rear view mirror in such a way that the driver has a clear vision of the traffic behind. Horns (Rule 119 Central Motor Vehicles Rules): No vehicle is allowed to be fitted with any multitone horn. Horns producing musical notes, unduly harsh, loud, shrill or alarming noises fall in this category.

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Tinted glasses (Rule 100 Central Motor Vehicles Rules): Tinted glasses or sun control films should not be so dark as to obscure clear vision. Any material that reflects light is also not permitted. Use of curtains that obscure clear vision is prohibited. TV/Video/Music (Rule 162 Central Motor Vehicles Rules): No TV/Video display should be placed in a vehicle in a manner that it may distract the driver. The music played in the vehicle must be kept at low levels of sound so as not to distract other drivers on the road. Duty of driver in case of accident and injury to a person (Section 134 Motor Vehicles Act): When any person is injured or any property of a third party is damaged as a result of an accident in which a motor vehicle is involved, the driver of the vehicle or other person in charge of the vehicle shall Unless it is not practicable to do so on account of mob fury or any other reason beyond his control, take all reasonable steps to secure medical attention for the injured person, by conveying him to the nearest medical practitioner or hospital immediately unless the injured person or his guardian, in case he is a minor, desires otherwise.

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 Give on demand by a police officer any information required by

him, or, if no police is present, report the circumstances of the occurrence, if any, for not taking reasonable steps to secure medical attention as required, at the nearest police station as soon as possible, and in any case within twenty four hours of the occurrence.
Give the following information in writing to the insurer who has

issued the certificate of insurance, about the occurrence of the incident namely: Insurance Policy number and its period of validity. Date, Time and Place of accident. Particulars of the persons injured or killed in the accident. Name of the driver and particulars of his driving license. Necessity for insurance against third party risks: (Section 146 Motor Vehicles Act): No person shall use, except as a passenger or cause or allow any other person to use, a motor vehicle in a public place unless there is in force a policy of insurance complying with the requirements of the provisions of the Act. The legal requirement is of third party insurance only. It is sensible to have a comprehensive policy that covers- third party risk, damage/loss due to accident, fire or theft and also covers risks against floods, earthquake, riots and strikes. Also, in the case of a motor vehicle carrying or meant to carry dangerous or hazardous goods there shall be policy of insurance under the Public Liability Act 1991.

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Section 196: Driving under vehicle: Whoever drives a motor vehicle or causes or allows a motor vehicle to be driven in contravention of the provisions of Section 146 shall be punishable with imprisonment which may extend to three months, or with fine which may extend to Rs 1000 or both. Transfer of certificate of insurance (Section 157 of Motor Vehicles Act 1988): Where a person in whose favour the certificate of insurance has been issued, transfers to another person the ownership of the motor vehicle, in respect of which such insurance was taken together with the policy of insurance relating thereto, the certificate of insurance and the policy described in the certificate shall be deemed to have been transferred in favour of the person to whom the motor vehicle is transferred with effect from the date of its transfer. The transferee shall apply within fourteen days from the date of transfer in the prescribed form to the insurer for making necessary changes in the certificate and the policy of insurance in regard to the transfer of insurance. Hit and Run Motor Accidents:

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Section 161 to 163 Motor Vehicles Act, 1988 describes the procedure of the insurance payments in the case of Hit and Run Motor Accidents. They are those accidents in which a member of the public is hit by a motor vehicle not identifiable or traceable by reasonable efforts of the claimants or the insurers. It defines the terms such as grievously hurt, death by hit and run motor accident. Claims Tribunals (Section 165 of Motor Vehicles Act 1988): A state Government may, by notification in the official Gazette, constitute one or more Motor Accidents claims Tribunals for such area as may be specified in the notification for the purpose of adjudicating upon claims for compensation in respect of accidents involving the death of, or bodily injury to, persons arising out of the use of motor vehicles or damages to any property of a third party so arising or both. A claims tribunal shall consist of such number of members as the state government may think fit to appoint and where it consists of two or more members, one of them shall be appointed as the chairman thereof. A person shall not be qualified for appointment as a member of a Claims Tribunal unless heIs, or has been, a Judge of a High Court, or Is, or has been a District Judge, or Is qualified for appointment as a High Court Judge Application for compensation (Section 166 of Motor Vehicles Act):

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An application for compensation arising out of an accident of the nature specified in sub-section (1) of section 165 may be made By the person who has sustained the injury By the owner of the property Where death has resulted from the accident, by all or any of the legal representatives of the deceased.

Every application under sub-section (1) shall be made, at the option of the claimant, either to the Claims Tribunal having jurisdiction over the area in which the accident occurred, or to the Claims Tribunal within the local limits of whose jurisdiction the claimant resides or carries on business or within the local limits of whose jurisdiction the defendant resides, and shall be in such form and contain such particulars as may be prescribed: Provided that where no claim for compensation under section 140 is made in such application, the application shall contain a separate statement to that effect immediately before the signature of the applicant. Award of the Claims Tribunal (Section 168 of Motor Vehicles Act) On receipt of an application for compensation made under section 166, the Claims Tribunal shall arrange to deliver copies of the award to the parties concerned expeditiously and in any case within a period of fifteen days from the date of the award. When an award is made under this section, the person who is required to pay any amount in terms of such award shall, within thirty days of the date of announcing

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the award by the Claims Tribunal, deposit the entire amount awarded in such manner as the Claims Tribunal may direct.

Procedure and powers of Claims Tribunals (Section 169 of Motor Vehicles Act): The Claims tribunal shall have all the powers of a Civil Court for the purpose of taking evidence on oath and of enforcing the attendance of witnesses and of compelling the discovery and production of documents and material objects and for such other purposes as may be prescribed. Subject to any rules that may be made in this behalf, the Claims Tribunal may for the purpose of adjudicating upon any claim for compensation, choose one or more persons possessing special knowledge of any matter relevant to the inquiry to assist it in holding the inquiry. Appeals (Section 173 of Motor Vehicles Act): Subject to the provisions of sub-section (2) any person aggrieved by an award of a Claims Tribunal may, within ninety days from the date of the award prefer an appeal to the High Court: Provided that no appeal by the person who is required to pay any amount in terms of such award shall be entertained by the High Court unless he has deposited with it twenty five thousand rupees or fifty percent, of the
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amount so awarded, whichever is less, in the manner directed by the High Court: Provided further that the High Court may entertain the appeal after the expiry of the said period of ninety days, if it is satisfied that the appellant was prevented by sufficient cause from preferring the appeal in time. No appeal shall lie against any award of a Claims Tribunal if the amount in dispute in the appeal is less than ten thousand rupees. Using vehicle without registration (Section 192 Motor Vehicles Act): Whoever drives a motor vehicle or causes or allows a motor vehicle to be used in contravention of the provisions of section 39 shall be punishable for the first offence with a fine which may extend to five thousand rupees but shall not be less than two thousand rupees for a second or subsequent offence with imprisonment which may extend to one year or with fine which may extend to ten thousand rupees but shall not be less than five thousand rupees or with both. Nothing in this section shall apply to the use of a motor vehicle in an emergency for the conveyance o persons suffering from sickness or injuries. Using vehicle without permit (Section 192A of Motor Vehicles Act): Whoever drives a motor vehicle or causes or allows a motor vehicle to be used in contravention of the provisions of sub-section (1) of section 66 or in contravention of any condition of a permit relating to the route on which the vehicle may be used, shall be punishable for the first offence with a fine which may extend to five thousand rupees
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but shall not be less than two thousand rupees and for any subsequent offence with imprisonment which may extend to one year but shall not be less than three months or with fine which may extend to ten thousand rupees but shall not be less than five thousand rupees or with both.

Types of Motor Insurance Policies

Legally, no motor vehicle is allowed to be driven on the road without valid insurance. The All India Motor Tariff governs motor insurance business in India. According to the tariff, all classes of vehicle use the following types of motor insurance policies as issued under Car and Two-Wheeler insurance. Car Insurance: Suitability: One should possess a valid Liability Policy to use a motor vehicle in a public place, as it is made compulsory by the provisions of Motor Vehicles Act 1988. In case a vehicle is purchased under Hire Purchase agreement, the financiers insist upon a Package Policy to take care of their interest as collateral security. Salient features: Insurance companies issue Liability for Act Risks and Package policy for Comprehensive Risks under the Motor Vehicles Insurance.

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Liability Policy: Liability policy covers risks required to be covered under the Motor Vehicles Act. It is mandatory that every car owner be covered against Act Risks under section 146 of Motor Vehicles Act 1988. The scope of cover is to pay compensation for death of or bodily injuries to third parties and damage to the property of third parties. While the insured is treated as the first party and the Insurance Company second party, all others would be third parties.

This policy provides personal accident cover of Rs 2, 00,000 to owner driver. While the compensation for the personal injuries to third parties is unlimited, property damage is limited to Rs 7, 50,000. Package policy: This policy covers all the risks of liability policy as well as the loss of or damage to insureds vehicle, also the perils covered are: Damage to vehicle by accidental external means, fire, lightning, explosion, self ignition, burglary Riot and strike, malicious acts and terrorist acts Earthquake Flood, inundation, cyclone etc Landslide/ rockslide Package policy can be restricted to loss or damage due to fire or theft or both. In case of liability policy + fire, the premium is only 25% of own damage premium + liability premium. In case of liability only

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policy + theft, the premium is only 30% of own damage premium + liability premium and in case of liability only policy + fire and theft, the premium is 50% of own damage premium + liability premium. No claim discount: For every claim free year, the insured is rewarded with discounts in premium up to an extent of 55%. In case of a claim in any year, bonus earned till that year is wiped out.

Two Wheeler Insurance : Suitability: All two wheeler owners should avail the Policy A or the Act Policy as it is made compulsory by the provisions of Motor Vehicles Act 1988. In case a vehicle is purchased under Hire Purchase agreement, the financiers insist upon a Comprehensive Policy to take care of their collateral security. Salient features: Insurance companies issue policy A or Act Policy and Policy B or the Comprehensive Policy under the Motor Vehicles Insurance. Policy A (Act Policy): Policy A covers risks required to be covered under the Motor Vehicles Act. It is mandatory that every two wheeler owner be covered against Act Risks under section 146 of Motor Vehicles Act 1988. The scope of cover is to pay compensation for death of or bodily injuries to third parties and damage to the property of third parties. While the insured is treated as the first party and the
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insurance company as second party, all others would be third parties. As per requirements of the Motor Vehicles Act, while compensation for personal injuries to third parties is unlimited, property damage is limited to Rs 6,000 only. This limit can be enhanced on payment of additional premium.

Policy B (Comprehensive Policy): For private cars and motor cycles, there are two sections in the Comprehensive Policy. Section 1 concerns loss or damage to the vehicle and covers the risks, This policy covers all the risks of Policy A as well as the loss of or damage to insureds vehicle also, the perils covered are: Damage to vehicle by fire, lightning, explosion Riot & strike, malicious acts and terrorist acts Earthquake Flood, inundation, cyclone etc

Landslide/ rockslide while in transit by rail, road, air

Policy B can be restricted to loss or damage due to fire or theft or both fire & theft in combination with policy A or without. In case of Act Policy+ fire or theft, the premium is only 25% of own damage premium+ Act premium. In case of Act + Fire & theft, the premium is 40% of own damage premium + Act premium. These extended

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covers can be obtained without inclusion of Act risks, provided the vehicle is not put to use. The geographical limit for use of the vehicle is India, but the limits can be extended to Nepal & Bhutan without extra premium and to Bangladesh by charging an extra premium of Rs 50 for comprehensive policy and Rs 10 for Act policies. Policies can be issued for periods less than one year. Long term policies can be issued for Act only risks.

Motor Tariffs
The Tariff Advisory Committee (T.A.C.) has aid down detailed rules, regulations, rates, terms and conditions for transactions of motor insurance in Indian accordance with the provisions of part 2 (B) of the Insurance Act,1938. The Tariff supersedes the provisions of Indian Motor Tariff in existence up to 30th June 2002. There is no motor insurance in India which is non tariff. The Tariffs are administered by the miscellaneous sub-committee of the four Regional Committees of the T.A.C. in Bombay, Calcutta, Madras and Delhi. Indian Motor Tariff: The Indian Motor Tariff has laid out certain general regulations that are to be followed by the insurer and the insured to constitute a valid contract. The regulations provide that the motor insurance in India cannot be transacted outside the purview of the Indian Motor Tariff unless specifically authorized by the Tariff Advisory Committee. Some of the important General Regulations under Indian Motor Tariff are as follows:
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GR-9: Depreciation on parts for partial loss claims: The following rates of depreciation shall apply for replacement of parts for partial loss claims in respect of all categories of vehicles. Rate of depreciation for all rubber nylon/plastic parts tyres and tubes, batteries is 50% Rate of depreciation for all parts made of glass is nil Rate of depreciation for all other parts like wooden parts depends upon the age of car. GR-12: Premium rates for short period cover: Policies issued or renewed for periods shorter than 12 months will attract short period rates which must also be applied in calculating the premium when policies are cancelled. GR-17: Transfer of rights to the legal heir in case of death of insured owner of vehicle: The existing Motor Tariff do not provide for automatic transfer of the rights to the legal heir in case of death of insured owner of vehicle. In order to facilitate the smooth transfer of the rights to the legal heir, it was decided at the Tariff Advisory Committee meeting held to incorporate the following provisions as a part of policy conditions. In the event of death of the sole insured, this policy will not immediately lapse but will remain valid for a period of three months from the date of the death of the insured or until the expiry of this

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policy (whichever is earlier). During the said period legal heirs of the insured to whom the custody and use of the motor vehicle passes may apply to have this policy transferred to his/her/their names or obtain a new insurance policy for the motor vehicle. Where such legal heirs wish to apply for a transfer of this policy or obtain a new policy for the Motor Vehicle he/she/they should make an application as per his/her/their requirements within the aforesaid period to the company. All such applications should be accompanied by: Death certificate in relation to the insured Proof of title to the motor vehicle Copy of this policy GR-20: Vehicles subject to Lease Agreement: It is not permissible to issue policies in the joint name of Lessee and Lessor. Policies must be issued in the name of Lessee and Lessors interest protected by the use of specified endorsement. GR-21: Vehicles subject to Hypothecation Agreement: It is not permissible to issue policies in the joint name of register owner of the vehicle. Policies must be issued in the name of register owner of the vehicle protected by the use of specified endorsement. GR-22: Cover Note:

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Cover Note insuring motor vehicles are to be issued only in form 52 in terms of rule 142 sub rule (1) of the Central Motor Vehicles Rules 1989 and as per section 6 of the India Motor Tariff. A cover note shall be valid for a period of 60 days from the date of its issue and the insurer shall issue a policy of the insurance before the date of expiry of the cover note.

GR-23: Certificate of Insurance: It is issued by the insurers in relation to every vehicle is the only evidence acceptable to the police authorities to show that valid insurance exists. This document has to be produced when demanded by an authorized police officer. It cannot be backdated. Hence, if a policy is not renewed on or before the expiry date, the certificate of insurance in respect of new insurance will be effective only from the date of new insurance. GR-24: Cancellation of Insurance and Double Insurance: Cancellation of Insurance: A policy can be cancelled only after ensuring that the vehicle is insured elsewhere and the original certificate of insurance is surrendered. If no claim has bee reported or made, a pro-rata refund subject to minimum premium being retained, can be made if the vehicle has been insured continuously for at least

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12 months preceding the date of cancellation under a policy in the name of the policyholder. If the policy has been in force for less than a year, the refund should be on short period basis subject to minimum premium being retained. If a claim is made or reported, no refund of premium should be allowed. It is important that the insurer should inform the R.T.O by registered post about the cancellation of insurance. In every case when policies are cancelled at insureds request to take advantage of pending rate changes, refund of premium must be calculated on short period basis.

Double Insurance: In case of Double Insurance, on cancellation of one of the policies by either of the parties, refund should be granted on pro-rata basis and not on short basis for period both the policies are in force concurrently. GR-25: Cancellation and issuance of fresh certificate of insurance: Whether any alteration is made in the policy affecting the information shown on the certificate of insurance, then it must be returned to the insurance company by the insured for cancellation and a new certificate must be issued. When a policy is cancelled by the insurer, the insurer should, within seven days, notify such cancellation to the registering authority concerned. GR-34: Registration, use and insurance:
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It is not permissible to insure any vehicle used for a purpose other than that permitted by RTA concerned and also to insure any vehicle in the name of an insured not conforming to the name recorded as owner of the vehicle in the vehicle registration document excepting: In case of temporary substitution In respect of Motor Trade Risk

Documents
Proposal Forms: In Motor Insurance contract the proposal form is used as a rule, it constitutes the means of communicating the offer to the insurers or for making proposal for motor insurance. It is so desired as to elicit all information necessary for a proper evaluation of the risk and for rating. The questions commonly asked are:

Particulars Occupation

about

the

proposed:

Name,

Address

and

Details of the vehicle to be insured: Registration letters and numbers make of the vehicle, date of purchase and price paid etc.

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 Details of other vehicles owned by the proposer and details of the accidents during the past 3 to 5 years Details of insurance history Certificate of Insurance: This is a document evidencing that a motor vehicle is insured against third party liability as required under the Act. Certain features which appear in the certificate are: Certificate number Registration mark and number or description of the vehicle insured Effective date for commencement of insurance Date of expiry of insurance Limitations of use Persons or classes of persons entitled to drive Cover Note: It is usually issued when the policy and certificate of insurance cannot be immediately issued for any reason. It has to be issued in a prescribed form and is valid for a period of 15 days. Policy Forms: Policy forms like proposal forms vary within wide limits as between different classes of insurance, but they have certain features in common. The policy is not the contract itself, but the evidence of the contract. As soon as the policy is issued, the cover note is cancelled.

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Endorsements: It is a document which incorporates change in the terms of the policy. It may be issued at the time of issuing the policy to provide additional benefits and covers or to impose restrictions. Renewal Notice: It is the practice of companies to issue renewal notice to the insured usually one month in advance of the date of expiry of the policy. Renewal Receipt: This is a simpler document than the policy. It is worded to the effect that in consideration of receipt of renewal premium, the policy is renewed for a further period of 12 months

Underwriting
Motor Insurance business in India id generally considered to be an unprofitable class of business. It is therefore essential to adopt a sound underwriting policy which involves not only careful selection of risks and imposition of appropriate terms and conditions. The main factors taken into consideration for underwriting are as follows: The type of Vehicle: The underwriting approach differs according to the type of vehicle. The heavier vehicles are more exposed to accidents since the resultant damages they incur are more. Similarly, vehicles with higher carrying capacity expose more passengers to risk. Therefore heavier vehicles attract higher premium rate. In private

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cars, taxis and motor cycles the more the cubic capacity, the higher is the premium rate. The value of the vehicle: The premium rate is applied on the value of the vehicle to arrive at the premium payable. It is the owner who has to select a correct value of the vehicle and declare the same for insurance. This value is known as the Insureds Estimated Value (IEV). In motor insurance, the IEV is the limit of liability per accident and not for the entire period of insurance. Normally, this value is arrived at by considering the age of the vehicle and its present purchase price. It is not worthwhile to insure your vehicle at a higher value since that will increase the premium payable but, in case of total loss, only the market value would be payable. It is very important to select a correct IEV for insurance. There is a tendency of motor vehicle owners to declare a lower value for insurance to reduce the premium expenditure. Although, insurance companies check the IEV for its sufficiency before accepting the insurance, this is not a correct practice as the insured is exposed to a greater loss in case the vehicle is totally lost or damaged. The Use of the Vehicle: Risk exposure varies in relation to the use of the vehicle. For e.g. taxis attract a higher premium rate whereas goods carrying vehicles, which are used as private carriers and transport, attract a lower premium rate.

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The Geographical area of operation: The area of operation of a vehicle has a direct bearing on the premium rate. This is so because, certain areas are more congested with high densities of population and road traffic than others and poses higher exposure to accidents. For this purpose, the tariff differentiates two zones in India, i.e. Zone A and Zone B, for private cars and taxis. Zone A represents the Madras region and Bombay region (excluding Bombay city) and Zone B represents the Calcutta region, Delhi region and Bombay city. In Zone B, the densities of population and road traffic are more and hence attract a higher premium rate. Such differential rating does not apply to commercial vehicles such as trucks and buses, as these vehicles normally travel throughout India for their operation.

Driver of the vehicle: The personal hazard of the driver is a crucial factor in the underwriting system. The hazard arising from the driver can be assessed from the point of view of his age, physical health, occupation and driving experience. Age has a material bearing on the risk. The young driver presents an unfavourable hazard because speed has special attraction for youth. Some insurance companies may also consider the sex and marital status of the driver. There is evidence that a female driver may present a better risk than a male and that a married person with possibly a family is a better risk than a single person. The driving experience may indicate accident proneness. It is found that numerous claims occur with new
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drivers because of their limited driving experience. Another great menace on the road is the experienced driver who is reckless and will take risks which the new motorist would never do. The claims experience: Unfavourable claims experience is

obviously a bad risk. The tariff has adopted a system called the Bonus/Malus Clause, to give discounts for good claims experience and a loading for bad experience. The system of Bonus/Malus recognizes the above factor indirectly since bonus is a reward which allows discounts for claim free period, while Malus is a loading in the premium for adverse claims. The minimum bonus is 20% and maximum is 65% whereas minimum Malus is 10% and maximum is 50%.

Claims
Motor Insurance business in India is generally considered to be an unprofitable class of business. In recent years, the claims under motor insurance have shown signs of deterioration. With the increase in the number of vehicles and traffic density, higher costs of labour and spare parts and escalating awards for third party claims, control of claims cost is imperative. The Insurance Companies in India are therefore required to pay the compensation amount to accident victim or the family members within 90 days. If the insurance company fails to do so, then the Motor
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Accident Claims Tribunals (MACT) must impose a penalty of Rs 5,000 on such companies for the delay. If after 90 days the insurance company fails to pay the amount it shall be the duty of the banker to deposit the cheque drawn in the name of claimant with the MACT in one week of 90 days expiry period. Most of the people perceive that procedure involved in claiming insurance is not too complicated and cumbersome. Smaller claims are processed within a period of two weeks but larger claims involve more procedures at the insurance companys office and thus take longer time.

Settlement of claims under Motor Insurance

For settlement of insurance claim under motor vehicle insurance the following claims usually occur in the following ways: Claims for Own Damage: On receipt of notice of loss, the policy records are checked to see that the policy is in force and that it covers the vehicle involved. The loss is entered in the claim register and a claim form is issued to the insured for completion and return. The insured is also requested to submit a detailed estimate of repair charges.

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 Assessment of Survey Report: Independent Automobile

Surveyors are assigned the task of assessing the cause and extent of loss. They inspect the damaged vehicle. And submit their report along with the copy of the policy, claim form and estimate cost of repairs.
Claims

Documents: The other documents required for

processing the claim are: Driving Licence Registration of Certificate book Fitness Certificate Police Report Financial Bill Satisfaction Note from the insured Receipted Bill from the repairer if paid by insured
Settlement of Claim: On the basis of survey report and claim

documents the insurance company determines the extent of its liability and the loss is indemnified. The insurance company may get the vehicle repaired instead of making cash payment to the insured in case of damage of motor vehicle. Claims for Theft or Total Loss Claims: Total losses can also arise due to theft of the vehicle and its remaining untraced by the police authorities till the end. These losses have to be supported by a copy of the First Information Report (FIR) lodged with police immediately after the theft has been detected. If the police authorities do not succeed in recovering the vehicle for

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theft claims, the insurer is requested to submit the certificate of side No. or CR No. Certification of true and undetected R.C. books and taxation certificate of vehicle along with documents related to vehicles and insurers. On the basis of investigation or inspection with valid documents the insurance company determines the total loss or theft. Claims for Third Party: On the receipt of notice of claim from the insured, or the third party or from Motor Accident Claims Tribunal, the matter is entrusted to an advocate. The insured is requested to submit full information relating to accident along with the following documents: Driving licence Police Report Details of Drivers prosecution Death certificate Medical certificate Details of age, income, no of dependents etc. On the basis of the written statements the matter is then filed with Motor Accident Claims Tribunals by the Advocate, the MACT determines the amount of claims to the third party. A claim is not honoured under the following circumstances: Any accident outside the geographical boundary of India Any accident when the vehicle is driven by a driver without a valid license.

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 Person driving under the influence of liquor or drugs

Wear and Tear: Consequential loss, depreciation, mechanical or electrical breakdown, failure or breakages.

War and allied perils Carrying of persons or goods more than the permitted capacity by R.T.O

Current Scenario

Now, ensure an ambulance cover with car insurance:

Motorists insuring their vehicles can now be assured of a private ambulance to transport them to hospitals in case of an accident. The Western Indian Automobile Association (WIAA) has launched a motor policy that goes beyond insuring the vehicle. The AA policy is the first one to be provided by an automobile association. WIAA has tied up with Japan based IFFCO-Tokyo General Insurance Company to provide the insurance cover. A victim

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covered under the policy will be provided with an ambulance that will transport the person to the nearest hospital in the shortest possible time. Five centres have been set up across the city to handle accident cases reported within the city limits. Later this service will be extended outside the city. Under the policy, special towing vans will be used to carry vehicles that have been damaged. The towing vans will ensure that vehicles, especially imported cars, are transported to safety without much damage. According to Mr.Kedia, director-marketing of IFFCO-Tokyo the biggest challenge is timely adequate claim settlement since the biggest problem with insurance is the delay in getting claims.

Get ready for roadside service from motor insurers:

Insurance Companies will soon be able to offer value added services such as roadside assistance to motor policyholders. Spains Mapfre Group, which provides infrastructure support to insurers providing motor assist programmes world wide is setting up shop in India. Mapfre is seeing a big opportunity in India after insurers get complete freedom to design insurance policies from April, 09. At present, insurers cannot provide wider than the standard motor insurance cover although they are free to set prices.

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At present, Mapfre Asistencia is present in the country in the form of a fully owned subsidiary- India Assistance. India Assistance will launch itself roadside assistance services, under which they will provide services for any kind of breakdown or accident. Customers need to dial the call centre numbers and report the problem, following which a suitable vendor will be notified and sent to the spot, to either fix or to tow the car away. In serious problem, the company will even provide the customer with a replacement car. India Assistance aims to tie up with more than 3,000 service providers for its roadside assistant services. The company will offer these services to insurers, who have the option of coupling it with their motor-insurance products as a value, add. The services will also be offered to other corporates who wish to offer it to their employees as well as automobile companies.

Case Studies
Changing Trends in Commercial Vehicles Insurance in India: Swami Dorai, the owner of a transport company was giving instructions to one of his truck drivers in the wake of new guidelines for insuring commercial vehicles. "Drive carefully, complete this trip without any major repairs," he said. His truck driver asked him the reason for the emphasis on repairs. "Following a burgeoning loss ratio, the state-run general insurance companies are no longer going to provide comprehensive insurance

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cover to commercial vehicles (CVs) over seven years old," replied Dorai. Insurance companies issued a circular directing branch and divisional offices to stop accepting comprehensive insurance policies for vehicles over seven years old from 2002. According to the circular, commercial vehicles over seven years old will be insured only for third-party liability. Comprehensive insurance policy covers third-party liability as well as damages suffered to vehicles. The insurance cost for motor vehicles was perceived to be too high. Dorai went to meet Krishna Reddy, the divisional manager of National Insurance Company which had insured all his vehicles, to talk about the issue. Although the company has not stopped insuring old commercial vehicles, it has changed the mode of accepting premiums. These will henceforth be accepted only at liability, said Reddy. Comprehensive cover is being discouraged. However the decision to provide comprehensive cover has been left to the discretion of field officers. The objective of regulation has been to make insurance available to all motor vehicle operators. Though Mr Dorai possesses old vehicles, the vehicles are in good shape and the insurer is benefiting as his claims are less than what he pays as premium, thus he asked Reddy to increase the premium amount. Reddy then told Dorai that taxies carry more passengers than prescribed. In case of accidents causing death or injury, the insurance companies have to bear the liability of all the passengers, even if there are more than the numbers prescribed.
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Thus the insurers make huge losses as the claims exceed the amount collected through premiums. This is one reason why insurance companies are discouraging third party cover and have curtailed commission to agents. The other reason is that the insurers have detected fraudulent transactions while claiming damages. Solution:-The insurers should not to provide insurance for commercial vehicles as the claims ratio in the motor vehicle insurance category has been consistently high in the past. It is necessary to develop fleet safety programs (by transporters).

IRDA and the Changing Tariff Structure for Motor Vehicle Insurance in India: What happened to the new tariff structure proposal by the Insurance Regulatory and Development Authority of India (IRDA)?" asked Charles De Cunha, owner of a transport service. "It's been deferred for the moment," said Rao, friend of De Cunha. De Cunha's company rents vehicles like cars, jeeps, luxury buses and other commercial vehicles. The travel agency is located in Chennai, India. De Cunha recently discovered that IRDA was planning drastic changes in the proposed tariff structure for automobile insurance.

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"Why has it been deferred?" asked De Cunha. "The IRDA has postponed it temporarily to bring in some more refinements," replied Rao. "Are you sure that the new proposal is going to come through?" asked De Cunha. "I hope so," said Rao. He added that N.Rangachary, the Chairman, had revealed that IRDA was likely to announce the rationalized tariff structure for motor vehicles insurance by the middle of May. "Do you know anything more about the new tariff structure?" asked De Cunha. "Yes, the new tariff structure has been evolved by the Ansari Committee. It was actually supposed to be effective from April 1, but in order to bring in more refinements, IRDA postponed it," said Rao. Is there any modification in the structure evolved by the Ansari Committee? asked De Cunha. To my knowledge, there are three major modifications made to the Ansari Committees recommendations,replied Rao. According to Rao, the modifications are: The rates of depreciation that the insurance companies will be allowed to deduct from the Insureds declared value have been raised. There are plans to reduce the country into two zones Concession in the premium for vehicles with anti-theft devices

Dividing the country into two zones will be beneficial. Chennai and New Delhi are in top zone and as of now the tariff structure will be

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high if the country is divided into four zones. But by reducing it to two zones, the tariff rate will be reduced for both Chennai and New Delhi. Solution:-IRDA is close to notifying the IRDA Regulations, 2002. These regulations deal with the disclosures that are to be made at the point of sale. In addition to this, the regulations stipulate the time limit within which the insurance companies must act under various circumstances. For instance, insurance companies have to furnish a copy of the insurance proposal form to the insured within 30 days of acceptance of the proposal. Queries too have to be raised at once within a period of 15 days.

Issues and Challenges

The Motor Insurance industry in India has been in existence for a long time. The market, like other insurance markets in India, has been detariffed and thus different players can come up with different products and not be bound by the tariff rules laid down by the Tariff Advisory Committee (TAC)

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Motor Insurance in India in some sense has been similar as anywhere else in the world- there have been different kinds of products but mainly the protection is towards any damage suffered by the insured. This means that the insured could claim damages from the insurance company against the costs for damages caused due to an accident. Further, the insurance company also provided incentives to the insured in terms of No Claims Discount i.e. if there was no claim made in a particular year; the insured would get a discount on the premium of the next year subject to a maximum discount possible. All these are in line, at least, with the automobile insurance policies in force in a number of developed markets. However, there have been differences in the way these policies have been implemented in India. These issues have been existent for a long time but never came to the fore in the days of the tariff regime and government controlled insurance market. But with about a decade of liberalization of the insurance sector in India and the detariffication of the market in recent times, some of these issues

have become really relevant and needs to be looked at with greater scrutiny. Some of the major issues are as follows: The age of the driver and the age of the driving license have no relation to the premium amount: The likelihood of an accident due to speeding is linked to two main factors: Age of the driver
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 Age of the driving License It has been observed that younger drivers are more prone to speeding and thus have a higher probability of being involved in high speed crashes and accidents leading to huge claims on the insurance policies. Very old drivers have been observed to have high probability in being involved in accidents due to their slowness in reflexes or other medical conditions. Internationally, mainly in the developed world, these conditions are considered while pricing the motor insurance policies. This implies that young and new as well as old drivers pay more in terms of premiums on their motor insurance policies as compared to middleaged drivers with a relatively old driving licence. This kind of movement on the premium values is needed to ensure that the insurance company is well covered in terms of the risks it faces by selling the insurance policies.

However, Indian markets observe none of these. In fact, the insurance premium is dependant not on the age or the experience of the driver but on the age of the policy in question. This is not necessarily the best strategy, especially from the perspective of the middle-aged experienced driver who should see a reduction in the premium cost but in effect sees no different from someone such younger and inexperienced. Similarly, the insurance company is not

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compensated for the additional risks it takes by insuring old drivers as the premium charged cannot be modified to take care of such issues. The type of the car has no relation to the premium charged: This is another major issue that needs to be tackled by the motor insurance industry in India. It is a fact that the premium on the car is dependent on the size of the engine of the car, but then it has to be realized that other factors also need to be taken into consideration while determining the premium value for the insurance. For instance, lets assume that there are two cars with the same engine size. But let one car be a sedate family car while the other is a sports car. Obviously, the premium of the sport car should be more- that is because the likelihood of a sports car speeding and therefore being caught in an accident is higher than that of the family car. Such issues or factors need to be considered by the insurers while formulating the policies and deciding on the level of premium associated with the policies.

This is something that is yet to be done in a large way in India. One standard reason why it is not so prevalent is the fact that there are very few sports cars in Indian markets, as compared to the motor market in any developed country. The No Claims Discount policy in effect lands up subsidizing the Bad Drivers at the cost of the Good Drivers: All automobile insurance policies in India, as in any other part of the world have No Claims Discount system built into them. This is
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effectively used as a means of rewarding Good Drivers for the fact that they have been good drivers and not caused any accidents which has resulted in claims to be settled by the insurer. There have been a large number of studies that have been carried out on the need of such schemes as well as the efficacy of such schemes. While such schemes are useful for both the insurer (over a period of time, the amount paid out as premium decreases) and the insured (has better information about the insurer and hence can plan better), it has often been seen that the schemes are not appropriately designed. What this results in is the fact that the better drivers end up in subsidizing the not so good drivers. An effective No claims Discount scheme should not have such biases and insurance companies should look at their portfolio and try and ensure that such biases do not remain.

A point that needs to be made here is the fact that such biases would be removed with the availability of better information about the driving habits and patterns of the insured population. This is an issue in India as the information that is available to the insurers is only based on the information reaching them when a claim is made. In large number of cases, the policyholders do not make a claim because the no claims benefit exceeds the cost of repair and thus makes sense to get it repaired without making a repair.

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The Claims settlement process is really not completely geared up to meet all kinds of challenges: This has been the single largest issue in the automobile insurance sector in India for a large number of years. The basic problem is the authenticity of the claim made and the time taken to settle the same by the insurance company. While insurance companies have made significant strides towards the timeliness of the disbursement of the accepted claims and in large number of cases there are cashless claim settlement processes which are in place but all these work on the premise that the claims are accepted as genuine by the insurer.

Conclusion
Motor Vehicle Insurance falls under General Insurance. Its

importance is increasing day by day. In Motor Insurance the owners liability to compensate people who are killed or injured through the negligence of the motorists or drivers is passed on to the insurance company. Motor Insurance business is the largest single section of accident insurance, if judged by premium income, but this relates to motor business as a whole.
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Insurance growth has been galloping in the recent years. The insurance industry in particular has been subjected to numerous changes in the last few decades since the need for insurance is more evident now than earlier. Peoples spending patterns are changing and more and more resources are needed for immediate consumption. In early 1990s, the joint family system had provided protection in case any unfortunate incidents were to occur to any individual of the family, but after the advent of industrialization, the joint families have split into single nuclear families. Thus, insurance has become the most reliable tool an individual can use to plan for his future. Motor insurance today constitutes 60% of the portfolio for most of the general insurance companies in the world. The trend would be the same in India also. In 5 years, the motor insurance is slated to increase from Rs. 8,000 crores to Rs. 20,000 crores. Currently, it is 41 % of the total general insurance business up from 36% five years back. The automobile insurance industry has certain issues to face up to resolve. That will ensure the fact that it shall be more efficient and geared up in tune with the growth in the automobile industry in India. Some of the issues are due to legacies that the insurers carry, some are due to certain mindset issues that both the insurers and insured have on certain issues which are due to data-related factors. Whatever may be the issue, one has to look at possible ways to address them, learn from markets that have addressed them successfully. This will make the industry stronger and more resilient.
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The current state of motor insurance as prevailing today can at best be summarised as below

Insurance has become the important driver for dealer profitability and customer satisfaction. Motor insurance especially private cars, is an area which all insurers want to develop.

Continuous increase in cost and charges for labour & parts and higher awards for third party claims are pushing the claims ratio up.

Bibliography
Reference Books: Motor Insurance by V.B.Kolhatkar Insurance by P.K.Gupta Insurance by Julia Holyoake Principles and practice of Insurance by Dr. P.Periasamy

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Newspapers: Economic Times Your Money DNA Money Search sites: www.autoinsurance.com

www.irda.org

www.insuremust.com Search engines: www.wikipedia.com www.google.com www.indianinfoline.com

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