Lok Sabha has passed the new Motor Vehicle Amendment Bill 2016, which is likely to become an act in the next session of Parliament. The Bill, apart from increasing penalties for traffic offences, also brings about drastic changes to how third party insurance claims are processed.
Presently, there is an unlimited liability clause relating to third party insurance. Because of this provision, the policyholders or the family members can file a claim at any time they want and there is no restriction or time limit to when they can do so.
But now, an amendment has been made in the Motor Vehicles Act that directs the victim or his family to file a compensation application within six months of the accident. Following this, the insurer is then required to make an offer to the claimant within 30 days of receiving the application. If the claimant accepts this offer, then the insurer will have to make the payment, again, within 30 days. If the claimant rejects the offer, then the matter is referred to the claims tribunal for hearing.
The Bill was facing opposition in the Parliament for the last few years, but this time around, it is expected to pass in its current form. This is because the recommendation of the standing committee - which includes representation from all political parties - has been incorporated.
The removal of unlimited liability clause brings a huge relief for insurers, as it was having an adverse impact on their bottomline and loss ratio. Insurers are facing loss ratios of more than 110% in motor insurance and are also subjected to fraud because of this clause. Not only that, this also has a bad effect on insurers books as they have to set aside reserves for claims that may arise at any point in time -- in technical terms this is known as Incurrent But Not Reported (IBNR) claims.
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