Govt. proposes to cap Insurance company’s liability for motor accident victims?

One of the leading Malayalam actors, Jagathy Sreekumar was seriously injured when the car in which he was travelling rammed a median while negotiating a dangerous curve in Malappuram district, Kerala, on March 10, 2012. He sustained multiple fractures and injuries on his head, chest, and abdomen. His family moved the MACT in 2013 asking for compensation to the tune of Rs. 10.50 crores. One of the biggest out of the court settlement to the tune of Rs.5.9 crores was reached between Future Generali Insurance Company and his family.

As on date, the Motor Vehicles Act, 1988 has given the Motor Accident Claim Tribunal (MACT) the power to decide on the compensation insurers need to pay on third party motor accident claims. The MACT takes a decision as to how much the insurance company should pay on the basis of age, income, health, dependants of the accident victim — without a cap on liability. In 2013, Rs.1.8crores was awarded by a local court in Chandigarh in 2013 to a road accident victim.

The Road Transport Ministry has been quoted with regard to the liability cap as “provided that the maximum liability for compensation to a victim by the insurer linked to the regulated minimum premium shall be a sum of Rs.15lakh or such higher amount as may be prescribed by the Central Government from time to time.” In India the premium payable for Motor insurance is regulated by IRDA and most insurers are raking up huge losses in the wake of such unlimited liability verdicts from MACT for road accident victims.

Several insurance companies have welcomed this move saying that incase higher liability limits are required by the insured, then just like international practices, insurers can provide the same to the insured by charging additional extra premium. KG Krishnamoorthy Rao, MD and CEO of Future Generali Insurance, said, “The cap is necessary as unlimited liability with fixed pricing is very difficult to price.”

On the other hand there is general criticism from various associations stating that such a cap would be unfair on the victim as the family. Transporters’ Association has also have criticized the move stating that their burden would be higher in such condition.

This Road Transport and Safety Bill is expected to be taken up for approval in the current Budget session of Parliament.

We think that this move may be beneficial in the long run. When the outflow of the insurance companies is reduced, and inflow higher with individuals  willing to pay more premium for higher death covers, the base premium has chances of getting reduced over a period of time.

What is your opinion on this proposed move?