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India : Auto Bill Imposes Big Fines For Uninsured vehicle Owners.

October 9, 2014

A draft Bill to amend the motor vehicle law has attracted wide attention because of its proposals for big increases in penalties on vehicle owners who fail to buy insurance and traffic offences such as drunken driving and an accident in which a child is killed.

The Road Transport & Safety Bill proposes that if a motorcyclist is caught riding without an insurance policy, the penalty will be INR10,000 (US$163) while owners of light motor vehicles and auto rickshaws will have to cough up INR25,000. For any car or truck driver caught driving without an insurance policy, the penalty is as high as INR75,000. This compares to a fine of just INR1,000 for all vehicles under the law currently in place which is the Motors Vehicles Act, 1988.

“This (the enhanced penalties) will increase penetration of motor insurance,” Mr Vijay Kumar head of motor insurance at Bajaj Allianz General Insurance told the Hindu Business Line.

Although, at present, vehicle insurance is mandatory, many people violate the regulation.

A study by state-run general insurer  New India Assurance shows that nearly 70% of motorcycles and scooters on the road are not insured. About a third of the cars and trucks are uninsured as well.

“Today projects involve a global supply chain, where materials and equipment are sourced all over the world, and this inherently increases the risk,” he said. “When the complexity of multiple jurisdictions is introduced, different legal exposure, contractual obligations, tax and compliance issues, and cultural norms such as work safety have to be taken into consideration.”

Insurance industry executives say that penalties should go beyond fines and include loss of licence for repeated violations. Mr Sanjay Datta, head of motor insurance at ICICI Lombard, said: “If the rules say that a three-time motorcyclist offender will lose his licence, it will bring discipline.”

Meanwhile, the Insurance Regulatory and Development Authority (IRDA) has shelved its plans for liberalising third-party motor insurance tariffs, reported the Economic Times. This is due to opposition from public-sector general insurers who fear they may be forced to take on most of the burden if  private insurers charge exorbitant premiums for high-risk vehicles.

Third-party insurance, which is mandatory for every vehicle in India, is highly unprofitable as the liability for insurers is unlimited and the premium is fixed by the insurance regulator. At present, due to the high claims ratio of around 140% from third-party motor insurance, insurance companies provide cover from a common declined pool instead of from their own books.

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