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3.0 INTRODUCTION
This is the class of Insurance through which a majority of the
people recognize general Insurance and that too because it is
compulsory for all motorized vehicles to have an Insurance
policy against third party liability before they can come on
road.
Though this class of Insurance is the major source of premium
earnings for the Insurance companies it is also the class which
is showing the biggest losses.
3.1 OBJECTIVES
At the end of this lesson, you will be able to:
Know the meaning of Motor insurance
Buy the Motor insurance
Settle the claim under Motor insurance/Third Party
Know what is not covered under Motor insurance
For purpose of insurance, motor vehicles are classified into
three broad categories:
(a) Private cars
(b) Motor cycles and motor scooters
(c) Commercial vehicles, further classified into
(I) Goods carrying vehicles
(II) Passenger carrying vehicles e.g.
- Motorized rickshaws
- Taxis
- Buses
3
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(III) Miscellaneous Vehicles, e.g.
- Hearses (funeral van)
- Ambulances
- Cinema Film Recording & Publicity vans
- Mobile dispensaries etc.
3.2 TYPES OF POLICIES
CAR/VAN MC/SCOOTER BUS/ TRUCK
HEAVY VEHICLE
Pvt. Commercial Private Private Commercial
Two Three
Wheeler Wheeler
TYPES OF CLAIMS
VEHICLE
ACCIDENT
Theft Accident
Collision
With Other Vehicle Other External Object Fire etc.
Own Damage Third Party
Total Loss
Cash loss
Repair DeathBodily injury Property damage


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Motor Vehicles Act, 1988
It is necessary to have knowledge of Motor Vehicles Act passed
in 1939 and amended in 1988.
In the old days, many of the pedestrians who were knocked
down by motor vehicles and who were killed or injured, did
not get any compensation because the motorists did not have
the resources to pay the compensation and were also not
insured. In order to safeguard the interests of pedestrians,
therefore, the Motor Vehicles Act, 1939, introduced compulsory
insurance.
The insurance of motor vehicles against damage is not made
compulsory, but the insurance of third party liability arising
out of the use of motor vehicles in public places is made
compulsory. No motor vehicle can ply in a public place without
such insurance.
The liabilities which require compulsory insurance are as
follows:
(a) any liability incurred by the insured in respect of death
or bodily injury of any person including owner of the
goods or his authorised representative carried in the
carriage.
(b) liability incurred in respect of damage to any property of
a third party;
(c) liability incurred in respect of death or bodily injury of
any passenger of a public service vehicle;
(d) liability arising under Workmens Compensation Act,
1923 in respect of death or bodily injury of:
(i) paid driver of the vehicle; (ii)conductor, or ticket
examiner (Public service vehicles); (iii) workers, carried in
a goods vehicle;
(e) liability in respect of death or bodily injury of passengers
who are carried for hire or reward or by reason of or in
pursuance of contract of employment.
The policy of insurance should cover the liability incurred in
respect of any one accident as follows:
(a) In respect of death of or bodily injury to any person, the
amount of liability incurred is without limit i.e. unlimited.
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(b) In respect of damage to any property of third party : A
limit of Rs.6,000/-.
The liability in respect of death of or bodily injury to any
passenger of a public service vehicle in a public place, the
amount of liability incurred is unlimited.
Section 140 of the Motor Vehicles Act 1988, provides for liability
of the owner of the Motor Vehicle to pay compensation in
certain cases, on the principle of no fault. The amount of
compensation, so payable, is, Rs.50,000/- for death, and
Rs.25,000/- for permanent disablement of any person
resulting from an accident arising out of the use of the motor
vehicle.
(Note: The principle of no fault means the claimant need not
prove negligence on the part of the motorist. Liability is
automatic.)
Certificate of Insurance
The Motor Vehicles Act provides that the policy of insurance
shall be of no effect unless and until a certificate of insurance
in the form prescribed under the Rules of the Act is issued.
The only evidence of the existence of a valid insurance as
required by the Motor Vehicles Act acceptable to the police
authorities and R.T.O, is a certificate of insurance issued by
the insurers. The points covered under a certificate of
insurance differ according to the type of vehicle insured.
3.3 TYPES OF POLICIES
For all classes of vehicles, there are two types of Policy Forms:-
Policy Forms
Form A Form B
To cover Act Liability To cover own damage +
Act Liability
Form A : to cover Act Liability.

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Form B : to cover Own Damage Losses and Act Liability. The
policy can also be extended to cover additional liabilities as
provided in the Tariff.
Form A is called Standard Form for A Policy for Act
Liability. This form applies uniformly to all classes of vehicles,
whether Private Cars, Commercial Vehicles, Motor Cycles or
Motor Scooters, with suitable amendments in Limitations as
to Use.
Form B, which provides wider cover as indicated above, varies
with the class of vehicle covered. There are therefore Form B
Policies for Private Cars, Commercial Vehicles, Motor Cycles/
Scooters, etc.
Policy Form B
This policy provides the so-called comprehensive cover and
the structure of the policy form is the same for all vehicles,
(with some differences which are pointed out, wherever
applicable)
Section I : Loss or Damage (or Own Damage). The risks
covered are :
a) Fire, explosion, self-ignition or lightning.
b) Burglary, house breaking or theft.
c) Riot and strike.
d) Earthquake (fire and shock damage)
e) Flood, typhoon, hurricane, storm, tempest, inundation,
cyclone, hailstorm, frost.
f) Accidental external means.
g) Malicious act.
h) Terrorist activity.
i) Transit by road, rail, inland waterway, lift, elevator or air.
j) Landslide /rockslide.
Exclusions
i. consequential loss
ii. depreciation
iii. wear and tear; and
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iv. mechanical or electrical breakdowns, failures or breakages
v. Damage to tyres unless the vehicle is damaged at the
same time. (Then, 50% of cost of replacement payable).
For commercial vehicles, see Compulsory Excess Clause
dealt with later
vi. Loss when the vehicle is driven under the influence of
intoxicating liquor or drugs
(Notes: 1. In the motor cycle and commercial vehicle policy
there are additional exclusions :
(1) Loss of or damage to accessories by burglary,
housebreaking or theft unless the vehicle is stolen at
the same time.
(2) In commercial vehicle policy, there is a further
exclusion: Damage caused by overloading or strain
of the vehicle.
Towing Charges
If the motor car is disabled as a result of damage covered by
the policy, the insurers bear a reasonable cost of protecting
the car and removing it to the nearest repairers, as also the
reasonable cost of re-delivery to the insured. The amount so
borne by the insurers is limited to maximum of Rs.2,500/- in
respect of any one accident.
(Note: For motor cycles the limit is Rs.300/-, for cars Rs.1500/
- and for commercial vehicles Rs.2500/-).
Repairs
Ordinarily repairs arising out of damage covered by the policy
can be carried out only after they are authorized by the
insurers. However, the insured is allowed to carry out the
repairs without authorization from the insurers, provided that:
(a) the estimated cost of such repair does not exceed Rs-
500/- (Rs.150/- for motor cycles).
(b) the insurers are furnished forthwith with a detailed
estimate of the cost; and
(c) the insured gives the insurers every assistance to ensure
that such repair is necessary and that the charge is
reasonable.
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Compulsory Excess
This applies to all vehicles. The insured has to bear a part of
the claim amount in respect of each accident.
Further loss / damage to lamps, tyres, mudguards and / or
bonnet side parts, bumpers and / or paintwork is not payable
except in the case of a total loss of vehicle.
Section II Liability to Third Parties
The insurers indemnify the insured against all sums which
he may become legally liable to any person including occupants
carried in the motor car (provided that they are not carried for
hire or reward) by reason of death or bodily injuries caused to
such third parties or by reason of damage to the property of
third parties caused by or arising out of the use of the motor
car. The insureds liability for damage to property of third
parties is limited to Rs.6000/-; whilst liability for death of or
bodily injury to third party is unlimited.
The legal costs and expenses incurred by such third parties
are reimbursed in addition. The legal costs and expenses
incurred by the insured are also reimbursed provided that
they were incurred with the insurers written consent.
The insurers are liable for the death of or bodily injury arising
out of and in the course of employment, but only to the extent
necessary to meet the requirements of the Motor Vehicles
Act. The damage to property is not paid for, if the damaged
property belonged to the insured or was held in trust by him
or was in the custody or control of the insured.
(Note: This section is, more or less, the same for all vehicles,
subject to some variations for motor cycles and commercial
vehicles)
Section III
This appears in commercial vehicle policies only.
This section provides cover while the vehicle is towing one
disabled mechanically - propelled vehicle. It provides that whilst
the insured vehicle is being used for the purpose of towing
any one disabled mechanically - propelled vehicle
(a) the cover provided by the policy remains operative, and
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(b) under Section II of the policy, indemnity will also be
provided for the liability in connection with such towed
vehicle. This however is subject to the following two
provisios:
i. The towed vehicle should not be towed for hire or
reward and
ii. No cover is available under the policy for the damage
to the towed vehicle or the property conveyed thereby.
General Exclusions (applicable to all sections)
These provide that the insurer shall not be liable in respect
of:
(a) any accident outside the geographical area specified in
the policy, that is, India. The limit can be extended to
cover Bangladesh, Bhutan, Nepal, Pakistan, Sri Lanka &
Maldives on payment of extra premium.
(b) contractual liability.
(c) any accident when the vehicle is used not in accordance
with the Limitations (Use Clause)
(d) any accident when the vehicle is driven without an
effective driving licence (Drivers Clause).
(e) war, etc and nuclear risks.
Conditions
Apart from the usual conditions such as notice of loss,
cancellation of policy, arbitration, etc. there are two conditions
which are specific to motor policies.
The insured is required to safeguard the vehicle from loss
or damage and maintain it in efficient condition. In the
event of an accident, the insured shall take precautions
to prevent further damage. If the vehicle is driven before
repairs any further damage is at insureds risk.
The insurer has the option to repair or replace the vehicle
or parts or pay in cash the amount of damage or loss. The
insurers liability cannot exceed the insureds estimated
value of the vehicle (specified in the policy) or the value of
the vehicle at the time of loss whichever is less.
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Rating/ Proposal Form
The proposal form elicits all information necessary for rating
and underwriting. Some examples of rating are given:
Private Cars/ Scooters/ Motorcycles
Rates are based upon the cubic capacity as given by
manufacturers, Insureds Declared Value (IDV), the Zone of
operation and age of the vehicle.
The cubic capacity of the vehicle indicates the power of the
engine. Separate rates apply for cars upto 1000 cc, fnm 1000
cc 1500 cc and ab_ve 1500 cc and scooters/motorcycles upto
150cc,150-350cc & above 350cc.
Similarly there are different rates for vehicles in the age groups
upto 5 yrs.; 5 yrs. to 10 yrs. and above 10 yrs.
There are two Zones of operation, Zone A and Zone B, as
follows:
Zone A : Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata,
Mumbai, N.Delhi & Pune
Zone B : Rest of India.
Note: The rates for Zone A are higher than those for Zone B.
Commercial Vehicles
The rating depends upon the Zone of operation, passenger
carrying capacity/ gross vehicle weight, Insureds Declared
Value (IDV) and age of the vehicle.
There are three Zones for commercial vehicles.
1. Zone A Chennai, New Delhi, Kolkatta and Mumbai
2. Zone B All other state capital
3. Zone C Rest of India
Personal Accident Cover
There is provision for Compulsory Personal Accident Cover for
Owner-Driver of cars and commercial vehicles of Rs.2.0 lacs
and Rs.1 lac for owner driver of scooters / motorcycles. It covers
Death, PTD and PPD only.
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Extra benefits
All Vehicles
(a) The Third Party premium includes cover for third party
property damage in excess of the required coverage of
liability of Rs.6,000/- as per the M.V.Act. In case the
insured wants to get only the liability as per act covered
(i.e. Rs.6,000/-) then discount in T.P. premium is allowed.
(b) Wider legal liability to persons e.g. paid drivers etc.
employed in operation and / or maintenance of the vehicle
i.e. under W.C. Act and at common law.
(c) Personal Accident cover for unnamed passengers as per
the registered carrying capacity of the vehicle upto a max.
of Rs.2 lac/ person on payment of extra premium.
Private Cars
(a) Extra fittings like radios, tape-recorders, air conditioners
etc. (Also applicable to commercial vehicles)
(b) Reliability Trials and Rallies in India (Also applicable to
motor cycles).
Discounts (some examples)
(a) Voluntary excess under Own Damage Section -(Applicable
to all vehicles).
(b) Membership of recognised Automobile Association (Private
cars & motor cycles).
(c) Deletion of Riot, Strike, etc.. Earthquake, Flood. (All
vehicles).
(d) Special discount for Anti-Theft device approved by AAI
(2.5% on O.D. premium max. of Rs.500).
(e) Special discount of 25% on O.D. premium for vintage cars
No Claim Bonus
A discount in the premium is allowed at renewal if there is no
claim during the policy year for all vehicles.
1
st
Year 20% 3
rd
Year 35% 5
th
Year 50%
2
nd
Year 25% 4
th
Year 45%
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Underwriting
There are several factors which are important for underwriting
such as type of vehicle e.g. imported cars, sports cars, use of
the vehicle, geographical area etc. But the most important is
the age of the vehicle.
Generally, the approach of insurers is as follows :
Comp. Comp. Subject Comp. Subject Act
Cover to Inspection Inspection Cover Only
+ Excess
Pvt. Car 10 Yrs. 10 15 Yrs. Over 15 Yrs.
Taxis 3 Yrs. 3 5 Yrs. 5 7 Yrs. Over 7 Yrs.
Public 5 Yrs. 5 6 Yrs. 6 7 Yrs. Over 7 Yrs.
Carriers
INTEXT QUESTIONS 3.1
1. How many sections are in commercial vehicles insurance
policy?
2. In how many zones is India divided for the commercial
vehicles?
3.4 CLAIMS (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 Claims Register and a
claim form is issued to the insured for completion and return.
The insured is required to submit a detailed estimate of repairs
from any repairer of his choice. Generally, these repairs are
acceptable to the insurers but they at times ask the insured
to obtain repair estimate from another repairer, if they have
reason to believe that the competence, moral hazard or
business integrity of the repairer first chosen is not satisfactory.
Assessment
Independent automobile surveyors with engineering
background are assigned the task of assessing the cause and
extent of loss. They are supplied with a copy of the policy, the
claim form and the repairers estimate. They inspect the
damaged vehicle, discuss the cost of repair or replacement
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with the repairer, negotiate as per the indemnity, and submit
their survey report.
In respect of minor damage claims, independent surveyors
are not always appointed. The insurers own officials or their
own automobile engineers inspect the vehicle and submit a
report.
Settlement
The survey report is examined and settlement is effected in
accordance with the recommendations contained therein. The
usual practice is to authorise the repairs directly with the
repairer to whom a letter is issued to that effect. In this letter
the repairers are also instructed to collect direct from the
insured the amount of the excess, depreciation, salvage, etc.
If applicable to the claim, before delivering the repaired vehicle
to him. The repairers are also instructed to keep aside the
salvage of damaged parts, if there are any, for being collected
by the salvage buyer nominated by the Insurers.
Or else, if the repairers are willing to retain the salvage, its
value, as indicated by the surveyor, is deducted from the claim
bill.
On receipt of their final bill of repairs after completion of repairs
and a satisfaction note or voucher from the insured that the
vehicle has been repaired to his satisfaction, the payment to
the repairer is effected.
Sometimes, the repairer is paid directly by the insured in
which case the latter is reimbursed on submission of a
receipted bill from the repairers.
In either case, discharge voucher or receipt is obtained. The
Claims Register and the policy and renewal records are marked
that the claim is paid indicating the amount of claim and the
amount of salvage, if any.
Claims Documents
Apart from claim form and Survey report the other documents
required for processing the claim are:
(1) Driving Licence
(2) Registration Certificate Book
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(3) Fitness Certificate (Commercial Vehicles)
(4) Permit (Commercial Vehicles)
(5) Police Report (Taxis, commercial Vehicle need F.I.R./ spot
survey if loss is heavy or T.P. loss occurs)
(6) Final Bill from repairers
(7) Satisfaction Note from the insured
(8) Receipted bill from the repairer, if paid by insured.
(9) Discharge voucher (full and final payment)
Total Loss Claims
Whenever a surveyor finds that a vehicle is either beyond
repairs or the repairs are not an economic proposition, he
negotiates with the insured to assess the loss on a Total Loss
basis - for a reasonable sum representing the market value of
the vehicle immediately prior to the loss.
If the market value is more than the insured value, the
settlement will be brought about for the insured value. The
Insured will be paid in cash and the Insurers will take over
the salvage of the damaged vehicle which will thereafter be
disposed of for their own benefit calling tenders through
advertisements in newspapers.
However, before the actual payment is made to the Insured,
the Insurer will collect from him the Registration and Taxation
books, ignition keys and blank TO. and T.T.0. forms duly signed
by the insured, so that the salvage is usually not encouraged,
unless insured desires, so as to avoid the hastle of salvage
disposal.
Theft Claims
Total losses can also arise due to the theft of the vehicle and
its remaining untraced by the police authorities till the end.
These losses will have to be supported by a copy of the First
Information Report (FIR) lodged with the Police authorities
immediately after the theft has been detected.
The police authorities register the complaint allotting it a
number of the entry made in the Station Diary. This number
which is usually known as SDE No. or C.R. No. (Crime
Register) has to be quoted by the Insured in the claim
intimation to the Insurers.
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The police keep the investigations going until the vehicle is
traced and delivered to its owner. However, if they do not
succeed in recovering the vehicle after a period of, say 1-2
months, they file away the case certifying that the case is
classified as true but undetected. This police certificate referred
as Non-Traceable certificate is essential before a total loss
following theft is settled by the insurers.
The documents to be submitted by the Insured will be the
same as those described above. If the R.C. Book and Taxation
Certificate are also stolen along with the vehicle. It will be
necessary for the insured to obtain duplicate ones from the
Registering Authority and thereafter deposit them with the
Insurers.
The only additional documents will be addressed by the
Insured to the R.T.O. informing about the loss of the vehicle
due to theft and filing a Non User Form so that he is not made
liable to pay the taxes.
Some insurers also obtain from the insured a special type of a
Discharge on a stamped paper whereby the Insured undertakes
to refund the claim amount if the vehicle is subsequently
traced and delivered to him by the police. He also undertakes
in the Discharge Form to pay any taxes which may be
outstanding against the stolen vehicle. The ignition keys
R.C.Books etc. are preserved by the Insurer in their custody
so that these are made readily available if the vehicle is traced
at a later date.
It is always prudent to inform the concerned Registering
Authority by a Registered A/D letter that a total loss claim is
being processed for payment in respect of the stolen vehicle
and to request them not to transfer the ownership of the vehicle
to any one. This will prevent the thief from disposing of the
stolen vehicle.
3.5 THIRD PARTY CLAIMS
Section 165 of the Motor Vehicles Act 1988, empowers the
State Governments to set up Motor Accident Claims Tribunals
(MACT) for adjudicating upon third party claims.
When a tribunal has been set up for an area, no civil court
has any jurisdiction to entertain any claim falling under the
tribunals jurisdiction.
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The aggrieved party has to move the tribunal within a period
of six months from the date of accident.
While making the award, the tribunal has to specify the
amount payable by the insurer.
The procedure for third party claims is briefly described as
follows:
On receipt of notice of claim from the insured, or the third
party or from the MACT, the matter is entrusted to an advocate.
Full information relating to the accident is obtained from the
insured. The various documents are collected and these include
Driving Licence
Police report
Details of drivers prosecution, if any
Death certificate, coroners (PM report) report, if any (fatal
claims).
Medical Certificate (bodily injury claims)
Details of age, income and number of dependants etc.
A written statement is then filed on the facts of the case with
the MACT by the advocate. Eventually, if the award is made by
the MACT, the amount is paid to the third party against proper
receipt.
INTEXT QUESTIONS 3.2
1. Who assesses the Claim of the Motor vehicle in case of
accident?
2. Who sets up the MACT and why?
Compromise Settlements
Where thed is clear liability under the policy, claims are
negotiated with the third party to accept a compromise
settlement, which if accepted by the third party, is registered
with the MACT and its consent obtained. The cheque is
deposited with MACT for disbursement to the rightful
beneficiaries.
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Lok Adalats
Pending cases with the MACT where the liability under the
policy is not in doubt are placed before the Lok Adalat or Lok
Nyayalaya, for a voluntary and amicable settlement between
the parties. A copy of decision in the prescribed memo and
the cheque is deposited with MACT. Lok Adalat sessions are
organized regularly by the insurance companies in liaison
with the Legal Aid Board of each State and MACT to effect
amicable settlement of third party claims.
No Fault Liability
These claims can be made by depositing the appropriate
amount with the MACT after obtaining death certificate, medical
certificate and police report.
3.6 SUMMARY
It is very important class of insurance as no vehicle can run
on the roads without having the insurance especially third
party. Any claim on account of damage of the vehicle will be
paid by the insurance company subject to the assessment of
loss by the independent Surveyor.
Third party claim is settled by the court and the government
has laid down the procedure to settle these cases.
3.7 TERMINAL QUESTIONS
a. Discuss the procedure to insure the vehicle for own
damage as well as third party insurance.
b. How the third party claim is settled?
c. Explain No Claim Bonus in vehicle insurance.
d. Write short notes on
Theft Claims
Lok Adalats
Types of policies
3.8 OBJECTIVE TYPE QUESTIONS
1. The validity of a Motor Cover Note may be extended
for a maximum period of _________.
a. two months b. one month
c. three months d. fortnight
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2. Which of the following Statement is true?
Statement A: Voluntary excess under own damage
section is applicable to all vehicles.
Statement B: Compulsory excess is applicable only to
commercial vehicles.
a. Both Statements b. Neither of the Statements
c. Only Statement A d. Only Statement B
3. Which of the following premium rating factors does
not apply to motor cycles and scooters (own damage
cover)?
a. Geographical area of operation
b. cubic capacity
c. Insureds estimated value
d. Purchase price
4. Choose correct Statement
Statement A: Third Party Liability premium of the State
transport vehicles are part of TP Pool
Statement B: Third Party Liability premium of the private
vehicles are not part of TP Pool
a. Both Statements b. Neither of the Statements
c. Only Statement A d. Only Statement B
5. Sec.163 (a) of the MV Act deals with the following:
a. No Fault Liability
b. Structured compensation
c. Defences available to Insurance Company
d. Appeal to High Court
6. Private Car policy does not cover the following use:
a. Used for social purpose
b. Reliability test
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c. Used for domestic pleasure purpose
d. Carrying samples belonging to insured
7. Own damage is covered under which Section of the
Package Policy?
a. Section II b. Section III
c. Section I d. None of these
8. Compulsory deductible is applicable to:
a. Commercial Vehicle only
b. Private cars
c. Miscellaneous vehicles
d. All the above
9. In case of double insurance with different insurers,
which of the policies would be cancelled?
a. At the option of the insured
b. At the option of insurer
c. Any one policy
d. Policy commencing later
10. Geographical Zone for the purpose of rating is based
upon:
a. Area of operation of the vehicle
b. Area of the insurance company
c. Location of R T O concerned
d. At the option of insured/ insurers
3.8 ANSWERS TO INTEXT QUESTIONS
3.1
1. There are 3 sections.
2. There are Zones i.e Metros, State Capitals and other cities.
3.2
1. The Approved Loss Assessor and Survey.
2. State Govt for speedy settlement of third party claims
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3.8 ANSWERS TO OBJECTIVE TYPE QUESTIONS
1. a 2. a 3.c 4. d
5. b 6. b 7. c 8. d
9. d 10 . c