Insurance Article, The Insurance Times 2021, The Insurance Times April 2021

INSURERS’ PERSPECTIVE TO LEGISLATIVE CHANGES IN MOTOR

Eco-system is evolving at a fast pace in motor line of business. Regulator brought in many changes related to mandatory long-term liability insurance to three years for private cars and five years for two-wheelers at the point of sale and registration, enhanced capital sum insured in compulsory personal accident cover on one hand and setting up working groups to adopt telematics for motor insurance and linking premium to traffic violations on the other hand.

In view of imponderables & uncertainties and significant divergence among Tribunals in determining ‘Just Compensation’ on similar facts, the Apex Court has constantly endeavoured to standardize the determinants of ‘Loss of dependency’ to bring uniformity and consistency in the decisions to determine compensation in a claim made under Section 166 of the MV Act.

When the question of future prospect was settled in Sarla Verma and Pranay Sethi & other cases for salaried persons as well as those who were self-employed or were having fixed incomes, the challenge was made with regard to loss of consortium to be awarded to children and parents in addition to wife and to claim for loss of love and affection in addition to three conventional heads laid down in case of Pranay Sethi.

The just compensation can never be in arithmetical exactitude but nevertheless, such standardization simplifies the otherwise complex exercise of assessing loss of dependency and help in making realistic appropriate technical reserves.

The most important change from the perspective of insurers in the recent past was the notification of Motor Vehicle (Amendment) Act, 2019 by the Central Government, and it came into effect on 1st of September 2019. The Amendment, apart from hefty penalties for traffic violations, new licencing requirements & new operating standards also brings drastic changes to third party liabilities and its claim process.

Enhanced penalties resulted in boom in business of the insurers in months after the implementation of these legislative changes. Driving an uninsured vehicle will now lead to a fine of Rs. 2000 for first offence which may increase to Rs. 4000 in case of repeat offence.

The changes brought in specifically by this Amendment, and that will determine the liability of insurers. Corresponding premium and related process are major concern for the general insurers which is the focus of this paper. Those who deal with TP claims or provide technical reserves should remain fully aware of these relevant changes which are discussed hereunder:

  1. Direct Settlement of TP Claim by the Insurance Company (Section 149): A new section has been introduced in Chapter XI empowering Insurance Companies for direct settlement of claims out of court. This may result in diminishing the burden of Tribunals and may provide faster settlements to victims of road accident and their legal heir who now have an option to approach insurers directly for pursuing their claim. The procedure prescribed for such settlement, in the Amendment Act, is as under:
    1. Upon receiving the information of the accident, either from the claimant or through Accident Information Report (AIR) or otherwise, the Insurance Company (IC) shall designate an officer to settle the claims related to such reported accident.
    2. The officer designated by IC for processing the settlement of claim of compensation may make an offer to the claimant for settlement before the Motor Accident Claims Tribunal (MACT) giving such details, within 30 days and after following such procedure as prescribed by the Central Government.
    3. If, the claimant to whom the offer is made under sub-section (2)
      1. Accepts such offer-
        1. The Claim Tribunal shall make a record of such settlement and such claim shall be deemed to be settled by consent; and
        2. The payment shall be made by the IC within a maximum period of 30 days from the date of receipt of such record of settlement.
      2. Rejects such offer-
        1. A date of hearing shall be fixed by the Claim Tribunal to adjudicate such claim on merits.

From insurers perspective outside court, settlements may reduce the burden of interest & conclude the uncertainty of appeal and from victims perspective. This may provide timely compensation and help to family in need of such support.

 

  1. Linking of TP Liability with TP Premium (Section 147):

The fundamental principle of insurance lies in adequacy of price consistently over a period of time for risk insurers to accept such legal liabilities. Insurers must be allowed to charge a premium sufficient to fund the ultimate cost of claims, necessary administrative expenses and margin to compensate for the cost of obtaining the capital necessary to fund the solvency margin.

The pricing of ‘own-damage’ risk of a motor vehicle was de-tariffed in India in 2007 but the ‘third party liability’ premium is still regulated by the Insurance Regulator.

The provision of unlimited liability in case of injury/death and Rs. 6,000 in case of third party property damage (TPPD) has now been amended in the Act and the concept of third party liability from being unlimited has been made to be linked with third party premium.

The Amendment empowers & authorize the Central Government to prescribe a base premium and the liability of an insurer for the purposes of TP insurance related to either death of a person or grievous hurt in consultation with the IRDAI. Till now the IRDAI was notifying the statutory third party premium on prescribed formula. Now this will require approval of the Central Government.

A policy of insurance issued before the commencement of the MV (Amendment) Act, 2019 shall be continued on the existing terms under the contract and the provisions of this Act shall apply as if this Act had not been amended by the said Act.

 

  1. New Statutory Defences (Section 150):

The statutory defences available to insurers in Section 149(2) of MV Act before this Amendment are now protected under Section 150(2). Ground of defence has been widened. In addition to the earlier mentioned defences following defences are now also available following with respect to breach of a specified condition of policy:

  1. Driving under the influence of alcohol or drugs as laid down in Section 185. This will provide statutory defence to insurers against drunken driving and may facilitate their defence in contesting such cases in the Tribunal or Court.
  2. There is non-receipt of premium as required under Section 64 VB of the Insurance Act, 1938. Insurers may deny the TP liability claims if the insured has not paid the insurance premium.

The aspect of Pay & Recover as mentioned in Section 149(5) of Act prior to Amendment is now deleted.

It shall be the duty of the owner of the vehicle to furnish to the Tribunal or Court the information as to whether the vehicle has been insured on the date of the accident. And if so, the name of the IC with which it is insured.

 

  1. Limitation of Period on Filing Accident Cases (Section 166 (3):

Time limit of six months for filing an accident claim that was taken away in the 1994 Amendment has been reinserted in the Act. No time limit for filing compensation by the victims of the road accidents paved a way and relief to fraudsters to take advantage of it and it created a challenge to insurers in contesting such cases and their actuaries to determine the ultimate cost of TP claims.

Now, after amendment of the Act, no application for compensation shall be entertained unless it is made within 6 months of the occurrence of the accident. This welcome change will bring reduction in doctored & fraudulent claims and will ensure faster settlement of TP liabilities.

 

  1. No-Fault Liability (Section 164) & Interim Relief:

Chapter X containing Section 140 to 144, dealing with provisions of liability without fault in certain cases and provision of interim relief of Rs. 50,000 in case of death and Rs. 25,000 in case of permanent disablement now stands deleted.

Section 163-A containing special provisions as to payment of compensation on structured formula basis along with Schedule II (as amended by Notification dated 22.5.2018) also stands deleted.

However, a new Section 164 has been introduced under Chapter XI that mandates that the owner of the motor vehicle or the authorized insurer shall be liable to pay Rs 5,00,000 in case of death and Rs 2,50,000 in case of grievous hurt in case the claimants do not want to contest and plead negligence of the offending driver.

However, now there is no add-on fault liability provision over and above no-fault compensation. Section 165(1) mandates that the acceptance of payment of compensation under Section 164 is conclusive and that it will result in lapse of claim petition under any other section.

From insurers perspective this provision may bring certainty and reduced liabilities to their fold.

 

  1. Motor Accident Fund (Section 164 B) to Provide Compulsory Insurance Coverage to All Road Users in India:

The Amendment Act directs Central Government for creation of Motor Vehicle Accident Fund to be augmented by a special tax or cess. The source of funds may include payment of a nature notified by the Central Government or by a grant or loan made by the government or by transferring the balance of Solatium Fund to this Fund or any other source as prescribed by the government. This fund may be utilized for:

  1. Providing interim relief to victims of motor accidents.
  2. Medical treatment of persons injured in road accidents by providing cashless trauma care during the Golden Hour, as per golden hour scheme.
  3. Monetary compensation to next kin of victim who died in Hit & Run cases and to a person grievously hurt in a Hit & Run case.
  4. For providing Compulsory Insurance cover to all road users in the territory of India. It also directs Central Government to make schemes.
  5. Compensation to any other persons as prescribed by the Central Government.

The scheme shall provide for procedure to recover funds disbursed under such scheme from the owner of the motor vehicle, where the claim arises out of the use of such motor vehicle.The compensation paid out of the fund shall be deductible from the compensation which the victim may get in future from the Tribunal.

 

  1. Hit & Run Motor Accident (Section 161):

Compensation quantum has been substantially revised in the Amendment Act. Amount of compensation has been raised to Rs. 2,00,000 in case of death and Rs. 50,000 in case of grievous hurt from earlier provision of Rs. 25,000 & Rs. 12,500 respectively for death & grievous hurt. The Amendment empowers Central Government even to prescribe higher amount of compensation for Hit and Run cases.

 

  1. Scheme of Golden Hour for Road Accident victims (Section 162):

A new section has been added in Chapter XI to provide scheme for the immediate compensation &cashless treatment of victims of the accident during the Golden Hour. Golden Hour is defined as a time period lasting one hour following a traumatic injury during which there is the highest likelihood of preventing death by providing prompt medical care (Section 2 (12A).

The insurance companies for the time being, shall provide treatment of road accident victims during the golden hour in accordance with the provisions of the Act and the schemes made under this Act. The Central Government shall make a scheme for the cashless treatment of victims of the accident during the golden hour and such scheme may contain provisions for creation of a fund for such treatment.

 

The concept of Golden Hour is very vital from the perspective of insurers too as it could mitigate the losses to a great extent.

 

  1. Protection of Good Samaritans (Section 134 A):

The Amendment Act introduces new section 134-A that defines ‘Good Samaritan’ as a person who, in good faith, voluntarily and without expectation of any reward or compensation (three ingredients & essentials of assistance) renders emergency medical or non-medical care or assistance at the scene of an accident to the victim or transporting such victim to the hospital.

Amendment makes provision for protection of good Samaritans from unnecessary trouble or harassment from civil or criminal proceedings and empowers Central Government to frame Rules for their protections. This is a welcome provision to ensure medical aid to injured accident victims in time.

Hopefully, the eyewitnesses to the accident who in fear of legal hassles use to remain mute spectators may now come forward to help the victims in timely medical aid. This may not only reduce the rates of death and disabilities but may also reduce the financial burden of the insurers in accident claims. It can also help in reducing the nuisance created by the ambulance chasers.

 

  1. Third Party (Section 145):

The definition of the third party has been widened, and now in addition to the Government it includes the driver and any other co-worker on a transport vehicle. Drivers and other co-workers of transport vehicles are now included in the mandated TP insurance.

The provision with respect to covering liability under Workmen Compensation Act for named employees and provision of non-coverage of contractual liability has been deleted in the Amendment Act.

The new provision will eliminate reference to Employee Compensation Commissioner as the cases now will be dealt with only at Tribunals. From insurers perspective however, the claim outgo may be increased.

 

  1. Necessity for Insurance against Third Party (Section 146):

The provision related to necessity for insurance against third party has been kept as it is in the Amendment Act.

 

  1. Accident Information Report (AIR- Section 159):

This section mandates for information to be given regarding the accident. The police officer, during the investigation, shall prepare an Accident Information Report (AIR), within three months, to facilitate the settlement of claim in such form and manner and containing such particulars and submit the same to the MACT and such other agency as may be prescribed.

From insurers’ perspective, this was a wanting provision with regard to investigation and its report to insurers. It may hopefully curtail the fraudulent practices of planting different vehicles in place of uninsured vehicles and different drivers in place of one who does not possess valid and effective DL and thus resulting in gain from insurers’ perspective in addition to reliable evidence on accident.

 

  1. Abatement of a Claim for Personal Injury on Death of the Claimant (Section 166 (5):

As per present law, a claim for personal injury would abate on the death of the claimant due to operation of Section 306 of the Indian Succession Act, and it would not survive to his estate. The claim would survive to the estate only if death had nexus with the injuries and only in such cases the legal heirs would be entitled to come on record and continue with the prosecution of the claim.

After Amendment of the Act, the right of a person to claim compensation for injury in an accident shall survive to his legal representatives, upon the death of the person injured irrespective of whether the cause of death is relatable to or had any nexus with the injury or not.

 

  1. Quantum for Appeal (Section 173):

No appeal shall lie against any award of MACT if the amount in dispute in the appeal is less than Rs. 1,00,000. Earlier this amount was Rs. 10,000. This may reduce litigation and appeals by the insurance companies. Normally, insurers themselves were not encouraging the practice of appeal for smaller quantum.

 

  1. Currency of Driving Licence (Section 14):

The currency of DL for transport vehicles is now extended to remain valid for 5 years & for the transport vehicle carrying goods of dangerous or hazardous nature validity is extended to 3 years instead of validity of 3 years and one year respectively earlier for such vehicles.

The validity of license for other vehicles for a license holder under 30 years remains valid till 40 years and over 30 years of age and below 50 years the validity is extended for 10 years. After attaining the age of 50 years, till 55 years the validity is extended till the age of 60 years.

On attaining the age of 55 years the DL is extended for a period of 5 years. Earlier the DL’s currency remained valid for 20 years or till the person attained the age of 50 years, whichever was earlier and thereafter it was extended for a period of 5 years.

 

  1. Renewal of Driving Licence (Section 15):

The grace period of 30 days for every DL has now been omitted in the MV (Amendment) Act 2019. However, where the application for the renewal of a licence is made either one year prior to the date of its expiry, the DL shall be renewed with effect from the date of its renewal.

The time limit for renewal of driving licence thus increased from one month to one year before and after the expiry date. Where an application is made more than 3 years after the DL ceasing to be effective, the licensing authority may refuse to renew the licence unless the applicant undergoes and passes a test of competence to drive to its satisfaction.

This provision may however impact some burden on claims from the perspective of the insurers.

 

  1. Driver Refresher Training Course (Section 20 with Section 200):

A new provision has been introduced mandating a condition to undergo driver refresher training course for reviving licence after suspension/ revocation under Section 19 and also for compounding of traffic offences under Section 200.

 

  1. Community Service as Punishment (Section 2 (4a):

The Amendment Act introduces a provision of Community Service. It means an unpaid work, in which a person is required to perform as punishment for an offence committed under this Act. This provision encourages the reformative theory of punishment and serves the dual purpose of punishment as well as social service.

 

  1. Licensing of Cab Aggregators (Section 1A):

The Amendment Act defines “Aggregator” as a digital intermediary or market place for a passenger to connect with a driver for the purpose of transportation. These aggregators will be issued necessary licenses by the State. Aggregators are required to comply with the extant provisions of Information and Technology Act, 2000.

 

 

  1. Liabilities of Guardians in Case of Accidents by Juveniles (Section 199(A):

The Amendment Act by inserting this section impose liability & fine of Rs. 25000 with a provision of three years imprisonment on guardian or the owner of the vehicle responsible for an accident caused by a juvenile. The juvenile will also be tried under the Juvenile Justice (Care and Protection of Children) Act while the registration of the vehicle will be cancelled. Only time will tell whether this would aid towards controlling driving by youngsters who are not even eligible to get a driving licence.

 

  1. Property (Section 145):

Baggage of passengers is now included in the definition of the property. Amendment Act property includes roads, bridges, culverts, causeways, trees, posts, milestones and baggage of passengers and goods carried in any motor vehicle.

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