Did you know that the premium on Third Party Liability (TPL) cover collected by the four nationalised insurance companies in 2001 was a mere Rs 1,108 crore, when it should have been at least Rs 7,155 crore? These are numbers that were provided by the ministry of road transport and highways to the committee set up by the Insurance Development Regulatory Authority and headed by Justice Rangarajan, which deliberated the issue in 2002-03.
The Motor Vehicles Act 1988 makes it mandatory for all vehicles to have third party insurance cover. Yet, the problems with viability of granting insurance cover and pathetic compliance ensure that accident victims always get a raw deal. Insurance companies es-timate that 60% of vehicle owners neglect to renew TPL cover after the first year, usually because insurance firms are also reluctant to issue TPL covers which make little business sense to them.
Since 2001, the number of vehicles has galloped and so has unpaid premium. Industry experts opine that if motor in-surance were not a loss-making business for insurers, they would have worked hard to ensure that vehicle owners do not flagrantly violate compliance requirements.
In October 2002, the IRDA had suddenly claimed that its threat to initiate strict action against insurance firms who were denying TPL cover to vehicle owners has yielded positive results. Two years later, it is clear that the picture is as dismal as ever and, in fact, works against compliance.
The IRDA had then set up an eight-member committee under Justice Rangarajan to work out alternative frameworks for detariffing the own-damage component of motor insurance by 2005. The comm-ittee also examined problems with TPL cover, which were, however, to continue under the tariff advisory committee.
Insurance companies argue that apart from losses, there are other reasons why they are reluctant to offer TPL cover. A private insurance company chief told me of three specific reasons why it does not make business sense. First, the business has been made unviable after “unlimited liability” was legislated by Parliament sometime in the late 1980s. This prevents companies from making even reasonably viable prem-ium estimates. Second, India allows ‘forum shopping’, which enables a victim to choose any court in India where he has the best chance of getting a high award. And third, the statute of limitation does not govern TPL claims.
The Justice Rangarajan Committee wasn’t convinced by charges of maladministration of insurance claims making the business unviable. But the fact remains that insurance firms aren’t keen on TPL cover renewals. While they do not directly refuse the insurance, they do give potential subscribers a royal run-around.
Consumer groups like the Consumer Education and Re-search Centre (CERC) argue that this causes harm to accident victims and has served a notice to the road, transport and highways ministry, IRDA and the finance ministry and threatened to file a PIL to ensure TPL cover rules are followed.
In its notice to the government, CERC argues that rampant violation of TP rules only increases the premium for honest vehicle owners who persevere and buy a policy. Professor Manubhai Shah argues that the absence of TP cover not only denies approp-riate compensation to accident victims, but also encourages insurance-less vehicles owners to run away after accidents.
The Justice Rangarajan Committee has come up with ideas like forcing vehicle owners to paste insurance details in the form of car stickers, and mandating petrol pumps not to refuel cars that do not carry an insurance sticker. But vehicle owners cannot be pen-alised unless TPL cover is easily available. Moreover, it is ridiculous to palm off regulatory responsibility to petrol pumps by forcing them to turn away business. It simply cannot work.
While the issue of TPL cover remains in limbo, media rep-orts carry a suggestion from the New Indian Assurance Company chief to impose a one-time premium for 15 years, which will amount to around 10% of the value of the vehicle. This will ensure a superb bonanza for insurance firms through mandatory compliance and one-time premium income. However, the idea is bound to be a non-starter. The powerful transport unions, who will face a steep increase in their costs, will vehemently oppose it. Al-ready, transporters complain about heavy “loading” of premia by motor insurance firms, depending on their payouts. They argue that the loading is arbitrary and well over the 100% limit permitted by IRDA in certain situations and other norms stipulated by it.
At the same time, groups like CERC are demanding that the government must go be-yond TP cover to protect accident victims. It wants a Solatium fund to be created with contributions from the insurance firms. This will be carved out of the premium collected by them and must be used to compensate even victims of hit-and-run accidents.
Interestingly, even the IRDA, an independent regulator, seems unable to resolve the TPL cover issue and balance various conflicting interests of transporters, insurers and victims. As always, the judiciary will be called upon to decide what is in the best interests of ordinary citizens, dealing yet another blow to the concept of independent regulation.