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India: Govt considering cap on auto accident liability.

February 20, 2019

The central government is planning to set a limit on the liability arising from road accidents in a move that will come as a relief to insurers which are facing heavy losses from third-party motor insurance. .

The government mooted the idea in the draft Road Transport Safety Bill released last year, where it mentioned the need to set the maximum liability limit in consultation with the insurance regulator. It also proposes that vehicle owners buy additional insurance to protect themselves from liability. Under the current system, there is no ceiling on payouts that insurers have to make in motor liability cases. The compensation amount is decided by the courts. In the case of road accidents, compensation as high as INR500 million (US$8 million) has been awarded, depending on parameters such as the income and the future earnings potential of the victim. .

“Having a maximum liability limit in third party motor insurance will help moderate premium increases,” Mr Vijay Kumar, Chief Technical Officer (Motor Insurance) at Bajaj Allianz General Insurance, told Hindu Business Line. He pointed out that while the value of claims rose by about 25% every year, the increase in premiums fixed by the regulator rose only by about 10%. .

A ceiling on motor liability compensation would help reduce costs for insurance and can lead to lower insurance premiums. This in turn will help address the issue of the large number of uninsured vehicles, said Mr Mukesh Kumar, Executive Director, HDFC ERGO General Insurance.

Insurers are seeking a 40% increase in third party motor insurance premiums this year as they have been reeling under a claims ratio of around 120% and estimated losses of INR120 billion. Third-party motor insurance coverage is mandatory by law and the premium is decided by the Insurance Regulatory and Development Authority of India

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