P Chidambaram to look at Rs10 lakh 3rd-party liability cap

The government is set to take up a proposal to cap insurers’ liability in third-party motor insurance claims at Rs10 lakh.

Finance minister P Chidambaram, who proposed a 12-point action plan for life insurers on Tuesday, is likely to meet the insurance regulator and general insurance industry heads next week for carrying out detailed deliberations on limiting third-party liability cover, product approval methods and tackling distribution challenges.

Currently, the liability arising out of death or body injury caused to a third party by any vehicle on road is unlimited.

“Government is likely to take up amendment of Motor Vehicles Act 1988 wherein the unlimited third-party cover is likely to end. Also, there will be discussions on certain issues like product filing method, bancassurance guidelines and so on,” said a source in the know.

The government had formed a 10-member committee under the chairmanship of S Sunder, former secretary in the finance ministry. The committee, which submitted its report in February 2011, had proposed a cap of Rs10 lakh for third-party motor vehicle liability cover.

Based on the committee’s recommendations, the Insurance Regulatory and Development Authority (Irda) had issued a discussion paper last December to gather views and comments from the industry.

“Limited liability is something that insurers have been demanding for a long time now, since it can also help us control our losses overall limited liability has to be in place,” said an industry official.
The new Act may also limit the reporting time of a claim to three years, which will prevent any misuse.

Currently, there is no time limit for claims reporting.

More importantly, the onus for reporting the matter is on the owner of the vehicle which had caused damage to the third party. In case of any delay in reporting the matter to the authority concerned, he or she stands to be penalised.

Insurers have asked the regulator to allow Use & File method for some basic general insurance products.

Under the File & Use method currently in vogue, insurers have to get the regulator’s approval before they can launch any product. Under Use & File, an insurer need not take the regulator’s approval before launching a product, and can do so afterwards.

This is expected to reduce delays in product approvals.
“Health and personal accident cover, home insurance and motor insurance should be allowed to follow Use & File system. We are hopeful that the ministry will approve it and the move may help insurers by getting faster product approvals,” said a source.

Delay in bancassurance guidelines is another area of concern for both general and life insures, and the industry is hopeful of getting a clear roadmap on this. Insurers believe they can reach out to customers extensively through an open architecture model, wherein there are no curbs on how tie-ups banks and  insurers can have. Currently, one bank can tie up with only one life insurance and one general insurance company.

“Bancassurance guidelines may be a major area of discussion with the ministry as it is vital for the industry at this point of time,” said the official.