Motor insurance: Need for clear-cut definition

FOR ALL insurance companies motor premium comprises a substantial portion of the overall portfolio. At the same time, it is the most painful of their accounts.

Insurance companies do not lose much on claims made in respect of damage to insured vehicles. But the payout on account of injury and death claims is very large. The reason for this unhealthy state of third party claims are many. In the first place, motor insurance premiums are governed by a government controlled tariff. Any attempt to raise the tariff based on unhealthy claims experience is resisted by vehicle owners as well as politicians.

Another cause for the unhappy state of affairs is that a large percentage of the overall claims outgo is not to insured persons or the heirs of those killed in accidents but to members of the legal fraternity. In America, lawyers who specialise in motor third party claims are called ``ambulance chasers''. In India the activity is much more dynamic. If and when an accident occurs, the policeman who comes to the spot, very often phones his lawyer friend first and then only the hospital for medical help!

Again there is no clear-cut definition in our judicial procedure as to who should be paid and how much. In the Gulf countries if any person is killed in a motor accident, the insurance company pays a well defined amount to the legal heirs almost immediately. This is called ``blood money''. Of course, the heirs can go to court for higher compensation. But such actions are few and far between.

If we had such a system in India, there would be no need for the Lok Adalats and Motor Accident Claims Tribunals. Most of the compensations in respect of death would be paid out immediately. What is more important is that the entire compensation would go to the legal heirs and not just a small percentage as happens now.

The Tariff Advisory Committee should really go into the claims experience over the last few years and arrive at a reasonable rate of premium so that insurance companies can transact the business in a viable manner. As it is, doubts are being raised in accounting circles as to whether the provisions made by the insurance companies for motor third party claims are reasonable/adequate.

Having said all this, we have to realise that the most important insurance cover is the motor policy which covers the vehicle owner's liability in terms of the Motor Vehicles Act to third parties.

The All India Motor Tariff provides for two types of policies. Policy (A) provides protection in terms of the Motor Vehicles Act, 1988. Policy (B) covers own damage to vehicles in addition to the Act protection given under Policy (A).

Under Policy (B) all the covers under Policy (A) are included. In addition, it covers loss of or damage to insured's vehicle and/or its accessories whilst thereon by: fire, explosion, self-ignition or lightning; burglary, house breaking or theft; riot & strike; earthquake (fire & shock damage); flood, typhoon, hurricane, storm, inundation, tempest, cyclone, hailstorm, frost, accidental external means; malicious act; terrorism; landslide/rockslide.

These losses are also covered while the insured vehicle is in transit by rail/ inland waterway/ lift/elevators/ air transport.

When a vehicle is involved in an accident, new parts are purchased to replace damaged ones. As old parts are being replaced, the insurance companies charge a depreciation percentage to be borne by the insured. The percentage chargeable is based on the type of parts and the age of the vehicles. The current depreciation schedule for all vehicles is as under.

For all rubber/ nylon/plastic parts/ tyres and battery 50 per cent; for all parts made of glass Nil.

For all other parts (based on age of vehicles): Up to six months Nil; Between 6 months and one year 5 per cent; one year and two years 10 per cent; two years and three years 15 per cent; three years and four years 25 per cent; four years and five years 35 per cent; five years and ten years 40 per cent; over ten years 50 per cent.

General exclusions: In respect of all vehicles, the main exclusions are: (a) Consequential loss, depreciation, wear and tear, mechanical or electrical break-downs, failures or breakages; (b) Damage to tyres, unless the vehicle is damaged at the same time when 50 per cent of the cost of replacement of the tyre/s is payable; (c) Loss or damage or liability arising as a contractual liability; (d) Loss and/or damage and/or liability arising outside the geographical area covered in the policy; (e) Driving by a person other than one duly licensed to drive the said vehicle; (f) Driving by insured or any person with his knowledge and consent under the influence of intoxicating liquor or drugs.

In respect of all motor cycles and commercial vehicles loss of or damage to accessories by burglary or house breaking or theft are not covered unless the vehicle is stolen at the same time.

Reasonable expenses and minor repairs: Policy (B)also covers reasonable expenses incurred for protection and charges of towing the accident damaged vehicle to the nearest workshop and re- delivery.

The maximum amount payable under this heading is Rs. 1,500 for private cars, for commercial vehicles Rs. 2,500 and Rs. 3,000 for motor cycles.

The insured is also allowed to carry out minor accident repairs subject to a detailed estimate being submitted to the insurer.

The limit of authority under this heading is Rs. 500 in respect of private cars and commercial vehicles and Rs. 150 in respect of motor cycles.

Duty of insured in the event of a third party claim: (a) Send written notice immediately to the insurance company; (b) Forward writ/ summons to the insurer; (c) Inform the insurer about all legal proceedings; (d) No commitment for any payment should be made by the insured or on his behalf without the written consent of the insurance company.

Right of insurance company: The insurance company resevers to itself the right to decide the basis of settlement. In other words, the option to settle the claim by paying for repair charges or by paying the total amount to the insured treating the concerned vehicle as a total loss is vested in the insurance company. The insurance company has also the right to inspect a vehicle for efficient maintenance.

Duty of insured: He must observe all precautionary measures to avert a loss; He must attend to the vehicle in the event of a loss immediately to avert further losses. He must act as if uninsured.

Cancellation: The insured and the insurance company have the option to cancel the policy giving seven days notice of cancellation. If the insurance company cancels the policy, it will give a refund of premium on pro-rata basis for the cancelled period. If the insured cancels the policy (subject to no claims being made), the insurance company will retain the premium for the period it was on risk calculated on short period rates and refund the balance.

Co-insurance: If by any chance there are two policies covering the same vehicle, each insurance company will pay up to its rateable proportion in the event of a claim.

Arbitration: If the quantum of liability admitted by the insurer is disputed, reference has to be made to arbitration as per Arbitration & Conciliation Act 1996. If liability is not admitted by the insurer, the same cannot be referred to arbitration, but has to be disputed by way of a legal suit within twelve months from the date of repudiation of liability.

Bonus/ malus clause: Bonus/ malus is a concept introduced in 1990 replacing the earlier No Claim Bonus System. Whilst, `Bonus' is a reward which allows discounts for claim - free experience, `Malus' is a form of loading on the premium for adverse claims experience. Whenever the insured lodges a claim on his policy, the renewal premium will be loaded by a fixed percentage prescribed in the respective section.

Loading/ Discount: On the basis of the bonus/ malus clause, there is a schedule of rates applicable at the time of renewal. Discounts are allowed under specified conditions.

Short period rates: If a policy is taken for short periods, there is a separate rate structure for various periods.

Transfers: Section 157 of the Motor Vehicles Act, 1988, lays down that when the certificate of registration is transferred from one person to another, the policy of insurance is deemed to be transferred to the other person on the same date. It should be noted that the existing bonus/ malus percentage remains with the transferor and it does not follow the vehicle.

Sum insured

Whenever an insurance policy is taken, the insured must look into two important points. First, what should be the sum insured and second, description of the property insured in the schedule of the policy to be issued.

In motor insurance, claims settlement is on the basis of market value of the insured vehicle in its condition at the time of accident or the sum insured whichever is less. Usually it is the tendency of all vehicle owners to continue insuring their vehicle at the original purchase price. This will be uneconomical. In today's conditions, the market value of a motor vehicle goes down considerably even as it leaves the showroom. Therefore it is advisable to check with a motor garage or an insurance company official to decide what could be a reasonable market value to be stipulated as the sum insured.

Secondly, if there are any extra fittings, they must be declared distinctly for insurance and their value indicated to be included in the policy schedule. The insurance company will not pay a claim for extra fittings unless declared. If during the period of insurnace, any extra fitting is added, inform the insurer immediately, pay the appropriate additional premium and get an endorsement to the policy, recording the addition.

Additional coverages: Personal accident risks for the insured as well as occupants, whilst conveyed by the vehicle; wider legal liability to driver, cleaner and coolies. The normal policy covers upto the limits prescribed in the Workmen's Compensation Act. The extension provides coverage for awards passed by courts made in excess of the amounts provided under the Workmen's Compensation Act; where cranes, rigs and other special vehicles are insured, it is advisable to avail of the additional coverage of the risk of overturning.

Deductible excess: The insurance policy for commercial vehicles and private carriers is subject to a deductible excess of Rs. 1,500 in respect of each and every claim. In respect of company omnibuses, the deductible excess is Rs. 500. Also damge to lamps, tyres, mudguards, bumpers, bonnet side parts and paint work are not payable. In respect of ambulance and other special types of vehicles, besides loss of or damage to lamps, tyres, bumpers, bonnet side parts and paint works, half per cent of the insured estimated value subject to a minimum of Rs. 1,500 in respect of each and every claim is also not payable.

What to do when a claim occurs

Preliminary steps:

* Give immediate notice to the insurance company.

* Report to police is a must if the accident involves any physical injury/ death.

* Take photographs of the vehicle in the accident spot from different angles.

* In case of major damages insist on a spot survey of the vehicle.

* In case third party claims are involved, do not enter into any compromise without prior approval of insurance company.

Subsequent steps:

* Obtain an estimate of repairs from the repairer.

* Instruct repairers not to carry out repairs before survey and approval by the insurance company.

* Submit the registration certificate of the vehicle and driving licence of the driver to the insurance company for verification and return.

* Instruct the repairers to buy new parts from authorised dealers, by obtaining cash bills and to keep the damaged parts, which are replaced, in a separate place duly identified. These are to be surrendered to the insurance company as salvage.

Documentation

Own damage claims: Completed claim form; estimate of repairs; photographs; registration certificate and driving licence. In respect of commercial vehicles the trip sheet and route permit must also be produced; claim bill; copy of police report (FIR); CFX form where applicable.

Third party claims: Completed claim form; copy of FIR from the police; claim letter in original received from the third party; legal notice, if any, received from third party; full details of all parties, inured/ dead; all other documents that would be required for own damage claims like R.C. Book, Driving Licence, etc.

Warning: You can forget your spouse's birthday or your wedding anniversary. With a little bit of conversational dexterity, you can get over the possible crisis. But if you forget to renew your motor vehicle policy on time, you may land yourself in an unmanageable financial and mental crisis if any accident to your vehicle occurs involving a third party injury or death.

N. Ramachandran

The author is an insurance consultant. He can be contacted at nramac@md3.vsnl.net.in

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