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What's 3rd party insurance?

What is motor third-party insurance?
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 the Motor Vehicles Act. It is referred to as a 'third-party' cover since the beneficiary of the policy is someone other than the two parties involved in the contract i.e. The car owner and the insurance company. The policy does not provide any benefit to the insured, however it covers the insuree's legal liability for death/disability of third party loss or damage to third party property.

How does one go about getting third-party insurance?

Since the third party insurance cover is mandatory, all non-life insurance companies have an obligation to provide this cover. What happens in the Indian context is that automobile dealers arrange for a comprehensive insurance cover along with vehicle registration. This comprehensive cover is an add-on to the mandatory third-party cover and protects the car owner from financial losses, caused by damage or theft of the vehicle. The cost of a comprehensive cover is several times that of a stand-alone third-party cover, since damage claims are more frequent than third-party claims.

What is the premium and other terms/conditions for buying the cover?

Until now, the premium for motor third-party insurance was calculated on the basis of a schedule of rates provided by the Tariff Advisory Committee- an arm of IRDA, the insurance regulator. From January 1, IRDA has done away with the motor tariff. However, IRDA has said it will continue to fix the premium for the mandatory third-party cover, but insurance companies can have the freedom to decide on prices for comprehensive cover.

How do the victims go about claiming compensation?

Accident victims (or their relatives in the case of death claims) have to file a claim for compensation with the Motor Accident Claims Tribunal, present in every state. The tribunal will pass an order for compensation after hearing lawyers from both sides. Invariably, there are lawyers specializing in MACT compensation claims. These lawyers usually approach victims and offer to file a claim for compensation on their behalf.

What is the kind of compensation provided? Are there are any limits on it?

The compensation to the victim is largely decided by the earning capacity of the accident victim. The highest compensation awarded to an accident victim, in Indian history, was Rs.16 crore paid to an NRI doctor. This was, however, reduced by a higher court. Insurance companies say that with income levels going up, awards granted are also rising.

Why is IRDA reluctant to leave it to insurance companies to decide the price of third party insurance?

Left to themselves, insurance companies would raise the premium for third-party cover for commercial vehicles by over 200%. Truckers, however, have protested against this stand on grounds that companies make huge investment gains on the reserves and need not charge more, since reserves are generated out of premium payment.

The last time IRDA revised rates, transporters went on a nation-wide stir bringing movement of goods to a halt. To resolve the deadlock, the IRDA has said that it would continue to decide on rate hikes and has published a new tariff with effect from January 1 where rates have gone up by as much as 150% for commercial vehicle owners.

Who are the worst affected by the increase in third-party premium?

According to insurance companies, the highest claims are from accidents caused by commercial vehicles which run several thousand km every month. The rate hike has been highest for commercial vehicles where prices have more than doubled. Private cars are not much affected as there is only a marginal hike. Moreover, car owners can look forward to lower rates for their comprehensive cover, despite de-tariffing. This will bring down their overall cost of insurance, despite an increase in the third party premium.