The Madras High Court order on making bumper-to-bumper insurance cover for all new private cars sold from September 1 may not stand legal scrutiny as the court cannot compel an individual to insure his property, said legal and insurance experts.
“It is patently untenable order and would not stand legal scrutiny if the vehicle makers or any other aggrieved party goes on appeal,” D. Varadarajan, a Supreme Court advocate specialising in company/competition/insurance laws, had told IANS.
“The court’s intent to provide insurance cover to the occupants of a private car is laudable. It comes under the Third Party cover. But the court by its order cannot compel a person to cover his vehicle under ‘bumper-to-bumper’ insurance policy,” Americai V. Narayanan, Chairman, ICM Insurance Brokers Pvt Ltd told IANS.
Vehicle insurance policies are two parts — own damage (insurance for the vehicle against damage, theft) and third party liability (liability for third parties).
The third party insurance cover is mandatory whereas the insurance cover for vehicle damage is not mandatory.
The Madras High Court order is for making insurance cover for vehicles mandatory.
“In my humble opinion, such sweeping order amounts to judicial amendment of the Motor Vehicles Act. Only the Supreme Court has such powers,” Varadarajan remarked.
“The court has gone beyond the brief and jurisdiction while the intention is laudable,” Narayanan added.
The court order will surely be music for the insurers and a jarring note for the vehicle buyers and vehicle makers.
The insurers will get a lump sum payment upfront on purchase of every new car and the insured is locked in for five years whereas the vehicle makers may suffer reduction in sales as the five-year insurance premium will add to the buyer’s cost.
Narayanan said the bumper-to-bumper insurance cover will cost higher than the comprehensive insurance cover as the claims under the former will be settled on replacement cost basis while under the latter depreciation will be applied on the component cost.
Commenting on the lack of awareness on the part of car owners about the liability for occupants of the car the court while hearing a case ordered: “Therefore, this court directs that whenever a new vehicle is sold after 01.09.2021, it is mandatory for coverage of bumper-to-bumper insurance every year, in addition to covering the driver, passengers and owner of the vehicle, for a period of five years.”
“Thereafter, the owner of the vehicle must be cautious in safeguarding the interest of driver, passengers, third parties and himself/herself, so as to avoid unnecessary liability being foisted on the owner of the vehicle, as beyond five years, as on date there is no provision to extend the bumper-to-bumper policy, due to its nonavailability,” the court ordered.
Only last year the Insurance Regulatory and Development Authority of India (IRDAI) withdrew the long-term motor insurance package policy.
Following a Supreme Court ruling, IRDAI had directed the general insurers to issue only three-year motor third party policies in the case of new cars and for two-wheelers, third party policies for five years with effect from September 1, 2018.
The IRDAI also advised general insurers to offer long-term package policy (own damage and third party) for three or five years or one year.
The insurance regulator also asked the insurers to offer standalone own damage insurance for vehicles from September 1, 2019 as the third party portion was already covered for three or five years.
The new norms boosted the insurers’ revenue in a great manner as the total premium for a new two-wheeler was about Rs 8,000 and for a car was about Rs 40,000.
As most of the vehicle’s purchases were made with a loan, the lenders insisted on comprehensive or package insurance cover.
However the IRDAI decided to withdraw the long-term package policy owing to various reasons.
These included actuarial pricing being a challenge for insurers for long-term own damage cover, distribution of package policies having its own challenges due to affordability factors for a large section of vehicle owners, and the possibility of forced selling due to financial interest/being linked to loans being high.
Also, in case of deficiency in services, policy-holders would be saddled with a long-term product with no flexibility in change options, and the ‘No Claim Bonus’ structure was not uniform among insurers and could lead to confusion and dissatisfaction amongst the policy-holders.
With Covid pandemic hitting the country, automobile sales plunged and high insurance premiums was one of the reasons cited by the vehicle makers for people not buying new ones.
This in turn also impacted the revenues of the insurers.
According to Varadarajan, it is a settled law that the occupants of a private car and the pillion rider on a two wheeler are third parties — first party insurer, second party vehicle owner and others are third party.
He said it is for the vehicle manufacturer’s body to arraign the Ministry of Surface Transport and IRDAI in a case to resolve the puzzle.
Narayanan said the Madras High Court could have made insurance cover for the occupants of a car compulsory under the third party insurance cover instead of ordering a compulsory bumper-to-bumper policy for five years.
Meanwhile, the court also ordered circulation of the judgement by the Additional Chief Secretary, Transport Department, Chennai, to all the insurers and the said officers must ensure that the above direction is followed scrupulously in letter and spirit without any deviation.
The court posted the matter for September 30 for reporting compliance.
(Venkatachari Jagannathan can be contacted at [email protected])