Third Party Motor Claims in Indian Insurance

Theoretical knowledge without the practical exposure is of little value. Theoretical studies in classroom are not sufficient to understand the functioning and nature of research. Therefore it becomes necessary to undergo research term paper work. Practical project supplements the theoretical studies i.e. it covers what is left uncovered in the classroom. It exposes a student to invaluable pleasure of experiences.

I complete my term paper on the topic “ANALYSIS ON THIRD PARTY MOTOR CLAIMS IN INDIAN INSURANCE INDUSTRY” During the term paper I got an opportunity to learn valuable things, which I could have been able to learn from theory classes.

In nutshell, whole of my term paper was invaluable experience in the pursuit of knowledge .In the forthcoming pages attempt has been made to present a comprehensive report concerning different aspects of my research. The overall gain to me will be reflected in the report itself.

The Motor Vehicles (MV) Act, 1988 mandates payment of compensation to the victims of accidents arising out of the use of a motor vehicle or motor vehicles, in public places by the owner or owners, as the case may. The MV Act further provides that no person shall use a motor vehicle in public places without a policy of insurance complying with the requirements of the MV Act. In such a policy of insurance, the insurer agrees to indemnify the user of the vehicle against the legal liability to pay compensation payable to the victims (third parties) of accidents (death, injury, disability, property damages, etc.) arising out of the use of the motor vehicle.

Apart from the legal liabilities to third parties, the general insurers also cover pecuniary losses arising out of damages to the vehicle of the insured. This insurance cover is commonly known as Own Damage Cover. The motor insurance portfolio has, thus, two distinct sections – one relating to the cover for the vehicle and its physical damage (OD) and the other relating to injury or death of other parties (TP). The cover for OD is optional and the cover for TP is mandatory. The Motor Third Party policies have to comply with the requirements of the MV Act. The compensation payable to the claimants is determined by he Motor Accident Claims Tribunals (MACT) established under the MV Act.

The motor portfolio constitutes around 40 per cent of the non-life insurance premium underwritten in India. The motor policies were governed by the tariff prescribed by Tariff Advisory Committee.

Sections 140 to 144 provides for interim compensation on ‘No Fault’ Basis. According to this provision Rs. 50,000/- is to be given to the kith and kin of the deceased and Rs. 25,000/- to the grievously injured victim. The compensation under Section 140 is made payable if prima facie evidence of following is available;

(1) Accident by the offending vehicle;

(2) Offending vehicle being insured;

(3) Death or grievous injuries have been caused.

(Section 145 to 164) provides for compulsory third party insurance, which is required to be taken by every vehicle owner. It has been specified in Section 146(1) that no person shall use or allow using a motor vehicle in public place unless there is in force a policy of insurance complying with the requirement of this chapter. Section 147 provides for the requirement of policy and limit of liability. Every vehicle owner is required to take a policy covering against any liability which may be incurred by him in respect of death or bodily injury including owner of goods or his authorized representative carried in the vehicle or damage to the property of third party and also death or bodily injury to any passenger of a public service vehicle. According to this section the policy not require covering the liability of death or injuries arising to the employees in the course of employment except to the extent of liability under Workmen Compensation Act. Under Section 149 the insurer have been statutorily liable to satisfy the judgment and award against the person insured in respect of third party risk.

Insurance Companies have been allowed no other defense except the following: –

(1) Use of vehicle for hire and reward not permit to ply such vehicle.

(2) For organizing racing and speed testing;

(3) Use of transport vehicle not allowed by permit.

(4) Driver not holding valid driving license or have been disqualified for holding such license.

(5) Policy taken is void as the same is obtained by non-disclosure of material fact.

Introduction

India is the 5th largest insurance market in Asia owing to its $30 billion insurance industry. Moreover, while growing to higher disposable incomes and savings and increasing urbanization and awareness, the insurance is expected to grow radically in the new future. Motor insurance is the largest business segment in the insurance sector in India as it constitutes 44% of the total product mix which includes fire, marine and life insurance. Motor insurance in India offers two kinds of coverage: comprehensive insurance and third party insurance.

In third party insurance or liability insurance “the assured himself is covered against legal liability which he may incur to a third party and the establishment of such liability by the third party, not merely suffered by the third party, is an essential perquisite to a claim in the policy.

The claims ratio for third-party motor insurance has been as high as 140 per cent for insurance industry, that is, for every Rs 100 that is collected by the insurers, Rs 140 is paid out as claims. Third-party premiums are pooled into an account that is managed by General Insurance Corporation of India, the Indian reinsurer. The claims are settled by the pool. At present, the corpus of the pool is estimated at Rs 8,000 crore.

What is motor insurance claim?

It involves damage to insured’s vehicle, damage to the third party motor vehicle, injury or death of the third party, this where a third party claims compensation for injuries/death caused due to the negligence.

The insured will refer all claims for third party claims against them to professional insurance. Insured shall not enter into any negotiation or agree to settle the claim outside insurance without the corporations consent.

What is third party insurance?

There are two quite different kinds of insurance involved in the damages system. One is Third Party liability insurance, which is just called liability insurance by insurance companies and the other one is first party insurance.

A third party insurance policy is a policy under which the insurance company agrees to indemnify the insured person, if he is sued or held legally liable for injuries or damage done to a third party. The insured is one party, the insurance company is the second party, and the person you (the insured) injure who claims damages against you is the third party.

Two coverages

Own Damage (OD) policies cover physical damage to own vehicle and is an optional coverage

Third party policies cover bodily injury and collision and are mandated by law Comprehensive policies cover both OD and TP

Third party pool

Effective April 2007, this pool has been set up as an arrangement for sharing commercial vehicles’ third party liability coverage among insurance companies.

Premiums and losses get ceded to the pool and the net results of the pool are shared by all insurance companies proportional to their market share in all lines of business combined.

No incentive to shy away from writing this business for private insurers.

This is the only coverage still subject to tariff control – tariffs controlled by the regulator and are insufficient to compensate the risk involved. FY09 loss ratio was 124% of earned premium, but lower than it has been in the past.

Pool is managed by GIC Re for a fee of 2.5% of the pooled premium and GIC also assumes statutory reinsurance cessions from the pool

Insurance companies receive 10% of the premiums as servicing fee.

The premium increases are still not adequate and should be revised in the near future.

Claim Application

Claim application can be filed under Section 163A for claim to be determined on structural formula basis provided in Schedule-II. Schedule-II has been adjudged as suffering from severe mistakes and the Supreme Court has held that total reliance cannot be placed on this schedule. Further the Schedule do not provide any computation chart for the persons having more than Rs.40, 000/- annual income. Claim petition can also be filed under Section 166 of Motor Vehicle Act pleading negligence where the claim shall be assessed by the Judge not on the basis of structural formula but on the basis of evidence led.

Accidents arising out of use of Motor Vehicle:

Section 165 provides the form of constitution of Claim Tribunal in adjudging claims of compensation in respect of accidents involving the death of bodily injury to persons “arising out of the use of Motor Vehicle”. Being welfare legislation the scope of this term has been widened which includes accident by a stationery vehicle, injuries suffered by passengers in bomb blast, injuries due to fire in petrol tanker. Murder in a motor vehicle has also been covered as a motor accident.

Assessment of Claim:

The assessment of compensation, however, be made good but cannot be said to be foolproof. In every such assessment certain assumptions are to be made and there is all possibility of variance from Judge to Judge in applying the various principles enunciated by the Courts from time to time. Lord Viscount Simon has evolved a method of assessment known as “Nance’s method” more popularly as “discounting method”.

Legal defense available to the Insurance Industry towards third party:

The Indian Insurance Industry cannot avoid the liability except on the grounds and not any other ground, which have been provided in Section 149(2). In recent time, Supreme Court while dealing with the provisions of third party motor has held that even if the defense has been pleaded and proved by the Insurance Industry, they are not absolve from liability to make payment to the third party but can receive such amount from the owner insured. The courts one after one have held that the burden of proving availability of defense is on Insurance Industry and Insurance Industry has not only to lead evidence as to breach of condition of policy or violation of provisions of Section 149(2) but has to prove also that such act happens with the connivance or knowledge of the owner. If knowledge or connivance has not been proved, the Insurance Industry shall remain liable even if defense is available.

Driving License

Earlier not holding a valid driving license was a good defense to the Insurance Industry to avoid liability. It was been held by the Supreme Court that the Insurance Industry is not liable for claim if driver is not holding effective & valid driving license. It has also been held that the learner’s license absolves the insurance Industry from liability, but later Supreme Court in order to give purposeful meaning to the Act have made this defense very difficult. Recently in a dynamic judgment in case of Swaran Singh, the Supreme Court has almost taken away the said right by holding;

(i) Proving breach of condition or not holding driving license or holding fake license or carrying gratuitous passenger would not absolve the Insurance Company until it is proved that the said breach was with the knowledge of owner.

(ii) Learner’s license is a license and will not absolve Insurance Company from liability.

(iii) The breach of the conditions of the policy even within the scope of Section 149(2) should be material one which must have been effect cause of accident and thereby absolving requirement of driving license to those accidents with standing vehicle, fire or murder during the course of use of vehicle.

Gratuitous Passenger

A gratuitous or fare paying passenger in a goods vehicle or fare paying passenger in private vehicle has been proved to be a good defense. In Motor Vehicle Act 1939 the gratuitous passenger was not covered under the insurance policy but a fare passenger in a goods vehicle was considered to be covered by 5 Judges Bench judgment of Rajasthan High Court. In new Motor Vehicle Act, a Division Bench of Supreme Court held that Insurance Company is liable for a passenger in goods vehicle. In another judgment of 3 Judges Bench of Supreme Court it was held that the Insurance Company is not liable for the gratuitous passenger traveling in the goods vehicle. In number of other cases this judgment has been reiterated with a direction that the Insurance Company shall first make payment of the compensation to the claimant and then recover it from the owner.

Dishonor of cheque of insurance premium

It has been held by the Supreme Court that once the Cover Note is issued the Insurance Company is bound to make payment to a third party and can recover amount from owner. This judgment deserves to be reviewed else Section 64 VB of Insurance Act will become non-existent. This judgment can give momentum to those persons who will get the insurance and will get their cheque been bounced as the liability of Insurance Company will run for another one year without there being a premium.

Transfer of Vehicle

Transfer of a vehicle prior to accident has been held to be not valid defense for the purpose of third party liability. It can be a defense for own damage but as far as third party liability, even the vehicle has been transferred and policy has not been transferred, liability of Insurance Company shall remain there.

Vehicle Coverage

There are plans afoot to limit third party motor insurance claims to RM100, 000 inclusive of hospitalization, rehabilitation, pain and suffering, loss of income and future earnings. The new scheme would involve insurers accepting all kinds of motor insurance including third party and comprehensive. The entire third party premium including the third party cover in comprehensive insurance would be carved out to a pool shared by all insurers. Unlike the existing Malaysian Motor Insurance Pool where it was the insurer of last resort, the new pool would have all third party coverage.

It suggested insurer would charge a higher premium while at the same time introduce a cap on third party bodily injury and death benefits to ensure that the new pool was profitable or at least broke even. Comprehensive premium might also be raised partly due to the third party component.

However, it added the premium charge for comprehensive coverage might differ from individual to individual given that more factors might be introduced like age, driving habit, area of driving, driving record and type of car to determine the premium instead of the current practice of only using sum insured and cubic capacity of the car.

The insurers would only have the profitable comprehensive coverage in their book if the new scheme were implemented.

The sector’s growth prospects were improving driven by 4.5 per cent Gross Domestic Product (GDP) growth in 2010, rising public awareness on insurance protections, low penetration rate and further liberalization on the sector.

Right of recovery from owner to Insurance Company

With the development of law, liability of the insurance Company has been made strict to the third party even if there is no negligence or defense to the Insurance Company are available. A right has been given to the Insurance Company by way of legal precedents incorporating various provisions to recover the said amount paid to third party from owner. This recovery can be made by mere filing of an execution application and not by a separate civil suit.

The Third Party (TP) claim segment in Indian insurance industry is a significantly higher claims ratio when compare to the Own Damages (OD) segment as indicated below:

Motor OD Motor TP (figures in percentage)

Company

2007-08

2008-09

2007-08

2008-09

NIA

53

49

209

181

NIC

60

60

252

155

UIIC

153

45

87

170

OIC

51

48

192

190

The reduction in the ICR in NIC and UIIC during 2008-09 is due to growth in motor third party premium and increased settlement of claims through Tribunals and other fora. Third party claims already settled were removed from the list of outstanding claims.

Claims Outstanding at the close of the financial year

company

2004-05

2005-06

2006-07

2007-08

2008-09

NIA

209471

(Not

available

236213

(Not

available)∗

244915

(114133)

248850

(120575)

266604

(127714)

NIC

195193

(65004)

233772

(91098)

271444

(108277)

299481

(122111)

277104

(115731)

UIIC

89618

(39235)

264001

(122610)

274198

(139172)

260609

(144873)

233241

(136612)

OIC

234950

(96086)

248476

(107123)

243027

(104616)

231370

(96135)

238174

(99161)

Audit objectives

The performance audit of the four companies was conducted to assess:

Appropriateness and adequacy of the systems for generating and monitoring claims related information for improving overall control on third party motor claim.

Compliance with underwriting principles while accepting risk.

Promptness, economy and efficiency in settling claims.

Adequacy of measures taken by the companies to control the losses.

Absence of centralized database

Claims are handled and controlled by the concerned divisional offices. A centralized database would assist the companies in Indian insurance industry in the following:

Searching for patterns in awards, interest allowed, delays, and vehicle make-wise claims, age-wise claims, etc.

Categorizing data for projections.

Compiling and tracking geographic location of accidents.

Speedy identification of possible fraudulent claims.

Compiling Tribunal wise awards and interest rates decreed to enable better presentation of defense against claims, awards and interest rates.

Taking specific management decisions.

Frauds in MACT claims

The need to build a centralized data base assumes importance in the context of the disturbing trend of fraudulent third party claims that have been detected. It was established by the insurance companies that in many such cases there had been active connivance between the persons involved i.e. the driver, doctors/hospitals, and advocates and in some cases the concerned police stations. In some cases, the same car was involved.

Delay in settlement of awards

The MACT shall forward awards within 15 days. The Act stipulates that the award shall be satisfied within 30 days of announcement of the award. In the divisional offices audited, these time frames were not followed in 1845 cases out of 7571 cases reviewed. In these cases, on account of the delay, interest amounting to Rs.220.28 lakh was paid during the period 2005- 06 to 2008-09.

Delay in investigation of MACT claims

A test check of the Own Damage (OD) claims, revealed that there were also motor Third

Party (TP) claims in Indian insurance industry pertaining to these accidents.

(Number of claims)

Company

2006-07

2007-08

2008-09

NIA

520

428

386

NIC

281

187

66

UIIC

930

821

787

OIC

239

266

296

Settlement through alternative forum

The Legal Services Authorities Act, 1987 provides for organizing of Lok Adalats by the Legal Services Committees at various levels, to determine and arrive at a compromise or settlement between parties to a dispute in respect of any case pending before any court for which the Lok Adalat is organized. Every Lok Adalat organized for an area shall consist of serving or retired Judicial Officers and other persons.

The insurance industry has also established Claims Conciliation Committees and Jald Rahat Yojana which are fora that enable negotiated settlements. The awards by these fora would not carry any interest. Thus, the settlements through the above fora would enable the companies to save interest and administrative charges.

In the units audited, it was noticed that the number of cases settled through these for a during the period 2006-07 to 2008-09 is 12547∗. NIC and UIIC stated that they were constantly monitoring the cases for expeditious settlement through alternative fora.

CLAIM PROCEDURE

Call on our Toll Free Number to register your claim and kindly keep the policy with you for reference

Details like engine number, chassis number and registration number will be verified by our customer support executive

The customer support executive will also need the following details to register a claim:

Contact number

Accident date and time

Description and location of the accident

Vehicle inspection address

Odometer reading

Once the claim is registered, the customer support executive will provide you with a claim reference number

The survey of the vehicle will happen within 24 hours of intimating the claim

You will be updated through SMS on every stage of the claim OR you can call on our Toll Free Number and quote the reference to know the status of your claim

Submit the completed claim form along with the driving license, RC copy and an estimate of the loss to the

repairer / dealer / nearest insurance office. It is preferable to submit an itemized estimate with separate values

Bajaj Allianz will arrange for inspection of the damaged items to assess the loss. In case of major loss or bodily injury, kindly register a FIR at the nearest police station

You have to provide the required documents to substantiate the extent of loss

Excess, as per the policy terms and conditions, will be deducted from the claim payable for every claim / loss

Making a Claim

If your vehicle is damaged in an accident, take it to the garage (if movable) or get it towed to avoid further damage

Notify us by calling on our toll free no.

Make a note of the registration number of the other vehicle involved in the accident, if any

Make a note of the name and contact details of witnesses, if any

File an FIR at the nearest police station in case of property damage, bodily injury or other major damages

The surveyor will survey and assess the damage before submitting his report to the insurance company

If you have signed up for cashless insurance, all you have to do is take your vehicle to a service center authorized to settle the claim. The service center will follow up with your insurer, and you’ll only have to pay the depreciated portion and compulsory excess of the claim

In case of a theft claim, file a police complaint immediately in writing and inform us on our Toll Free Number

If your vehicle isn’t found within 90 days, ask the police to issue you a ‘non-traceable report’. It is basically an undertaking by them that they are yet to find your vehicle; you need to submit these details to the insurer to ask them to wait for 90 days from the date of the theft. Failing which we will start the claims process

Documents required while making a claim

Claim form duly signed by the insured*

RC copy of the vehicle

Driving license copy**

Policy copy (first two pages)

FIR

Original estimate

Original repair invoice, payment receipt (for cashless garage – only repair invoice)

For Theft Claims

Claim form duly signed by the insured*

RC copy of the vehicle with all original keys

Driving license copy**

Original policy copy

Original FIR copy of the complete theft report

RTO transfer papers duly signed along with Form numbers 28, 29, 30 and 35 (if hypothecated)

Final report – A no-trace report from the police saying that the vehicle cannot be located

For Third Party Claims

Claim form duly signed by the insured*

Police FIR copy

Driving license copy**

Policy copy

RC copy of the vehicle

Stamp required in case of company registered vehicle’s original documents

After Registering the Claim

The surveyor will contact you within 24 hours of registering the claim

Submit the copy of documents to the garage / dealer and get it verified with the originals

Our surveyor will get the estimate for the repairs of your vehicle

If the loss is not much, we suggest that you avail spot settlement of claims through Bajaj Allianz Mobile Settlement service

After completion of repair at our preferred garage we will make payment of the loss directly to the garage

You will only have to pay the excess as mentioned in the policy and the depreciation value, salvage etc. as informed by the surveyor.

Literature Review

NIC approached the High Court of Madras seeking investigation by the police in a third party motor claim suspected to be false. The investigation by the police authorities proved that the claim was fraudulent. The Court directed that a Central Agency be constituted for the purpose of looking into all complaints, relating to bogus claims within 60 days of reference by the Insurer. Accordingly, a central agency was constituted by the Crime Branch – Crime Investigation Department (CB-CID) of Tamil Nadu Police in Chennai.

NIC brought to the notice of the High Court that consequent to the formation of the CB-CID, 410 third party motor claims were withdrawn. However, it also pleaded that the central agency was showing “indifference” in the investigation and prayed for investigation by the Central Bureau of Investigation (CBI), in the cases closed by the CB-CID. During the course of the hearing, the three other insurers also furnished details of fraudulent claims requiring investigation. The Court ordered investigation of the complaints by CBI. The CBI, however, expressed its inability in handling such a volume of cases. The Court, therefore, agreed that the CBI undertake investigation in 13 specific cases (11 involving fraudulent claims and two involving use of fake First Investigation Reports).

Research Methodology

Objective

The objective of this term paper is to explore the evolution that has taken place in the field of third party motor claims in Indian insurance industry and its relation with third party insurance cover in India.

Scope

The scope of this term paper will be limited to liability insurance, third party claims, motor insurance industry in Indian insurance industry. It will also be limited to the concepts of third party motor claims in Indian insurance industry like MACT claims, Lok Adalats and third party pools.

Recommendations

The companies should:

Create and maintain a centralized database of motor claims at Head Office level (categorizing the claims into death, grievous injury, minor injury and property) for monitoring of the claims.

Develop systems for review of the performance of advocates and investigators to ensure that only those rendering satisfactory services are retained.

Create dedicated cells at operating offices for expedditious satisfaction of the awards within the time stipulated in the MV Act, where appeals are not considered necessary.

Take steps to identify and insure uninsured vehicles in collaboration with the concerned Regional Transport Authority and Police Departments in the States.

Industry level efforts should be made to establish a Bureau of Investigation of TP claims, as directed by the High Court of Madras in November 2008.

A consolidated Industry-level database of all the insurers issuing motor policies may be created to enable identification of duplicate claims and possible fraudulent claims; and to enable identification of involvement of vehicles in accidents for proper loading of premium.

The General Insurance Council should engage with the State Governments to ensure compliance with the directions of the Supreme Court on adherence to the requirements of Section 158 (6) of the Motor Vehicles Act.

Conclusion

In India, under the provisions of the third party motor claims in Indian insurance industry should have a valid Insurance to drive on the road. Any vehicle used for social, domestic and pleasure purpose and for the insurer’s business motor purpose should be insured.

Insurance is a contract whereby one party, the insurer, undertakes in return for a consideration, the premium , to pay the other, the insured or assured, a sum of money in the event of the happening of a , or one of various ,specified uncertain events.

Insurance developed from the fourteenth century as a means of spreading huge risks attendant on early maritime enterprises; life and fire insurance developed later. The main classes of insurance are life and other personal insurance, marine insurance, accident or property insurance and liability insurance when the sum becomes payable when legal liability is incurred as for personal injuries or professional negligence to another.

Motor third-party insurance or third-party liability cover, which is sometimes also referred to as the ‘act only’ cover, is a statutory requirement under t