Motor Insurance
Motor Insurance
Motor Insurance
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The aim of all insurance is to compensate the owner against loss arising from a variety of
risks, which he anticipates, to his life, property and business. Insurance is mainly of two types:
life insurance and general insurance. General insurance means Fire, Marine and Miscellaneous
insurance which includes insurance against burglary or theft, fidelity guarantee, insurance for
employer's liability, and insurance of motor vehicles, livestock and crops.
The Insurance Act, 1972 and the General Insurance Business (Nationalisation) Act, 1972
govern Fire and Marine Insurance, while the Indian Marine Insurance At, 1963 governs marine
insurance in our country. These laws contain provisions relating to the constitution, management
and winding up of insurance companies and the conduct of insurance business of all types. All
insurance business in India has been nationalised.
A Contract of insurance is a contract by which one party undertakes to make good the
loss of another, in consideration of a sum of money, on the happening of a specified event, e.g.
Fire accident or death. Law recognises insurance as a system of sharing risk too great to be borne
by one individual.
Insurance in its basic form is defined as A contract between two parties whereby one
party called insurer undertakes in exchange for a fixed sum called premiums, to pay the other
party called insured a fixed amount of money on the happening of a certain event."
In simple terms it is a contract between the person who buys Insurance and an Insurance
company who sold the Policy. By entering into contract the Insurance company agrees to pay the
Policy holder or his family members a predetermined sum of money in case of any unfortunate
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event for a predetermined fixed sum payable which is in normal term called Insurance
Premiums.
Insurance is basically a protection against a financial loss which can arise on the
happening of an unexpected event. Insurance companies collect premiums to provide for this
protection. By paying a very small sum of money a person can safeguard himself and his family
financially from an unfortunate event.
For Example, if a person buys a Life Insurance Policy by paying a premium to the
Insurance company , the family members of insured person receive a fixed compensation in case
of any unfortunate event like death.
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If we see in real life we can say that Motor Insurance is an important part of General
Insurance; it is the fascinating branch of insurance. This type of insurance has come into
existence from United Kingdom in the early part of this century. As you must be surprised to
know that the first Motorcar was introduced in England in 1894. The first motor policy to
provide coverage for third party liability was came into existence in 1895. Now you must be
wondering what is a third party liability? Third party liability includes third party and liability
incurred towards third party. Third Party means any party other then owner /driver or the
government, any liability occurring towards third Party due to use of motor vehicle is third party
liability. It can be in the form of bodily injury to third party or damage to third party property.
So at the beginning, only third party insurance came into existence but later on, in U.K
they realized the importance of insurance in terms of motor and with this an accidental
comprehensive policy also came into existence and later on the lines of U.K. we started using
approx the same policy.
In 1903 the Car and General Insurance Corporation limited was established mainly to
transact motor insurance, after this company a lot many other companies has come into existence
to transact this business. It has been realized that after World War I, there was a considerable
increase in the number of vehicles on the road and when we have the number of the vehicles on
the road there is an increase in the number of accidents. As the concept of insurance was not that
much in existence so lot of accidental damages were not at all recovered and the motorists faced
a lot of problems for getting their treatments and damages to their vehicles. After realizing this
the introduction of compulsory third party insurance through the passing of the Road Traffic Acts
1930 and 1934 was done. Later on these Acts have been consolidated by the Road Traffic Act
1960.
In 1939, India has also realized the importance of Motor Insurance and Motor Vehicle Act
was passed and came into existence in 1939. Earlier, only few people knew about motor
insurance but later on compulsory third party insurance was introduce by the Act on 1st July
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1946. We in India follow the same practice as that of U.K. Today we follow a set Tariff
provided by Tariff Advisory Committee where as now in U.K. Tariff business have been
withdrawn. As Motor Vehicles Act laid the provisions in 1939 and it required some amendments
that were implemented by the Motor Vehicles Act 1988 and it became effective from 1 st July
1989 and thats how the insurance concept has come to India.
As you all know in our country crores of vehicles are plying on the road and lot of
accidents occurred daily, and due to these accidents damages to material and third party occurs.
Third party is any person other then the owner. But the question arises how the loss is to be
compensated? After realizing all these problems it was made mandatory for all the vehicles
which are plying on the road to have an insurance which can provide coverage to general public
against the risk of loss or damage to motor vehicles and with this the motor insurance concept
has come into existence and Act made this insurance compulsory for everyone those who are
driving the vehicle on the road so it become quite popular among people and than motor
insurance policies become available to provide a comprehensive cover and a third party liability
cover.
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1) INDEMNITY :
A contract of insurance contained in a fire, marine, burglary or any other policy
(excepting life assurance and personal accident and sickness insurance) is a contract of
indemnity. This means that the insured, in case of loss against which the policy has been issued,
shall be paid the actual amount of loss not exceeding the amount of the policy, i.e. he shall be
fully indemnified. The object of every contract of insurance is to place the insured in the same
financial position, as nearly as possible, after the loss, as if he loss had not taken place at all. It
would be against public policy to allow an insured to make a profit out of his loss or damage.
2) UTMOST GOOD FAITH:
Since insurance shifts risk from one party to another, it is essential that there must be
utmost good faith and mutual confidence between the insured and the insurer. In a contract of
insurance the insured knows more about the subject matter of the contract than the insurer.
Consequently, he is duty bound to disclose accurately all material facts and nothing should be
withheld or concealed. Any fact is material, which goes to the root of the contract of insurance
and has a bearing on the risk involved. It is only when the insurer knows the whole truth that he
is
in
position
to
judge
(a)
whether
he
should
3) INSURABLE INTEREST:
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A contract of insurance effected without insurable interest is void. It means that the
insured must have an actual pecuniary interest and not a mere anxiety or sentimental interest in
the subject matter of the insurance. The insured must be so situated with regard to the thing
insured that he would have benefit by its existence and loss from its destruction. The owner of a
ship run a risk of losing his ship, the charterer of the ship runs a risk of losing his freight and the
owner of the cargo incurs the risk of losing his goods and profit. So, all these persons have
something at stake and all of them have insurable interest. It is the existence of insurable interest
in a contract of insurance, which distinguishes it from a mere watering agreement.
4) CAUSA PROXIMA:
The rule of causa proxima means that the cause of the loss must be proximate or
immediate and not remote. If the proximate cause of the loss is a peril insured against, the
insured can recover. When a loss has been brought about by two or more causes, the question
arises as to which is the causa proxima, although the result could not have happened without the
remote cause. But if the loss is brought about by any cause attributable to the misconduct of the
insured, the insurer is not liable.
5) RISK:
In a contract of insurance the insurer undertakes to protect the insured from a specified
loss and the insurer receive a premium for running the risk of such loss. Thus, risk must attach to
a policy.
6) MITIGATION OF LOSS:
In the event of some mishap to the insured property, the insured must take all necessary
steps to mitigate or minimize the loss, just as any prudent person would do in those
circumstances. If he does not do so, the insurer can avoid the payment of loss attributable to his
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negligence. But it must be remembered that though the insured is bound to do his best for his
insurer, he is, not bound to do so at the risk of his life.
7) SUBROGATION:
The doctrine of subrogation is a corollary to the principle of indemnity and applies only
to fire and marine insurance. According to it, when an insured has received full indemnity in
respect of his loss, all rights and remedies which he has against third person will pass on to the
insurer and will be exercised for his benefit until he (the insurer) recoups the amount he has paid
under the policy. It must be clarified here that the insurer's right of subrogation arises only when
he has paid for the loss for which he is liable under the policy and this right extend only to the
rights and remedies available to the insured in respect of the thing to which the contract of
insurance relates.
8) CONTRIBUTION:
Where there are two or more insurance on one risk, the principle of contribution comes
into play. The aim of contribution is to distribute the actual amount of loss among the different
insurers who are liable for the same risk under different policies in respect of the same subject
matter. Any one insurer may pay to the insured the full amount of the loss covered by the policy
and then become entitled to contribution from his co-insurers in proportion to the amount which
each has undertaken to pay in case of loss of the same subject-matter.
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Liability towards Third Party Property Damage to the extent of Rs. 6000/- only;
Liability towards employees of the owner of the vehicle while traveling in or using it, against
bodily injury, to the extent required under the Workmens Compensation Act.
Form B, or what is commonly known as Comprehensive Policy, is an optional cover, which
Loss or damages to the vehicle and its accessories and extra fittings protection and removal
costs, and towing disabled vehicles (only for commercial vehicles).
Liability towards employees under Common Law and Fatal Accidents Act, over and above
the liability under Workmens Compensation Act.
The above or liabilities can be separately covered in conjunction with the liabilities covered
under the Act Policy, by taking a Comprehensive Policy paying an additional premium.
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FORM A POLICY
As per the provisions of Motor Vehicles Act, all the vehicles plying in the Territorial Limits
of India must possess an ACT POLICY at all times. The violation is punishable with fine etc., as
per Motor Vehicles Act (as prevalent at the time of detection). As described earlier, this policy
covers:
1. Third Party Property Damage / Bodily Injury (Fatal or Non-fatal) when Insured vehicle is
used in a public place,
2. Insureds legal liability, as per Motor Vehicle Act, arising out of accident caused by or arising
out of the use of the vehicle anywhere in India, and
3. Such liability as above in respect if injury (fatal or non-fatal) to any third party and damage
to any third parties property.
The owners of the vehicle having insurable interest in it undertake this policy. The period of
the cover is generally a period of 12 months from the date of inception. However, Short period
covers are also available at higher rates. Subject to limit of liability laid down in the Motor
Vehicle Act, the policy pays the insureds legal liability for death/disability for third party, loss or
damage to third party property. Also, the liability for claimants cost is also met (Maximum Rs.
6000/-) unless additional premium for opting unlimited cover is paid. In addition, all costs and
expenses incurred with insurers written consent are paid.
In case of death of the insured/person entitled to compensation for a liability incurred under
this policy, his legal heirs will be indemnified as in the case of the Insured, subject to the
limitations of use of the vehicle provided that the Driver was holding a valid and effective
driving license.
Third Party (A person other than Insured and the Insurer) who is injured/dies due to an
accident with the Insured, the amount of compensation adjudged by the Motor Accident Claims
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Tribunal is made good by the insurers and is payable to the legal heir of the deceased or the
injured. The amount of compensation is unlimited / has no preset limit.
All costs and expenses are incurred by the insured with Insurers written consent. The
compensation payable to Third Party for damage to its property (moveable or fixed) is restricted
to Rs. 6000/- {Rupees Six Thousand Only}, irrespective of the amount adjudged by the Motor
Accident Claims Tribunal / court. This compensation limit can be increased to unlimited by
paying of an additional Premium at the time of taking insurance. All costs and expenses incurred
by Insured with Insurers written consent.
Claims arising out of and in the course of employment of a person in the employment of a
person of the Insured are compensated to the extent of Rs. 20,000 when an Employee (other than
paid driver) is in the driving seat.
When vehicle is used outside the geographical area, when used contrary to limitation as to
use, driven by a person other than the driver as stated in the clauses mentioned in the policy of
insurance.
FORM BPOLICY
Form B is an optional cover, which offers some specific advantages. Although the Act
Policy Form A is identical for different classes of vehicles, the comprehensive policy cover
differs for various classes of vehicles; the comprehensive policy cover differs for various classes
of vehicles. For private cars and motorcycles, there are two sections in the comprehensive Policy.
Additionally, Section III is provided for commercial vehicles.
I. It concerns loss or damage to the vehicle and covers the risk like:
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Earthquake
above coverage, for all classes of vehicles, the risks of riot, strike, malicious and terrorism
damage, earthquake and flood and storm; can be opted out of with a consequent discount in
premium. In addition to these, cover is also available for protection and Removal Costs and
authorisation of Repairs. If a motor vehicle is disabled as a result of loss or damage due to the
perils mentioned above, the insurance company bears the reasonable cost of protection and
removal to the nearest repairer and the cost of redelivery to the owner /insured subject to a
maximum limit, in respect of any one accident. The limit for various class of vehicle are as
follows:
Motor Cycles/ Scooters
Private Car & Taxis
Other Commercial Vehicles
Rs.300
Rs.1500
Rs.2500
The owner / insured is also allowed to authorize repair expenses upto Rs. 500 /- per accident.
II.
It covers the liability towards third parties, i.e., liabilities of bodily injuries and
property damage.
III. It is applicable to commercial vehicles. It covers the vehicle while it is being used
for the
purpose of [Towing Disabled Vehicles. This section covers Third Party Liabilities that the
insured vehicle or the one being towed for reward / remuneration. Further, the insurance
company is also not liable for damages to the towed vehicle or any property being conveyed
thereby.
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CALCULATION OF PREMIUMS
In case of Comprehensive Insurance Cover, for the purpose of premium, vehicles are
categorized as follows:
a) PRIVATE CAR
This is used for personal purpose. The premium is computed on the following basis:
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Goods-carrying commercial vehicle: In this case premium is calculated on carrying capacitygross vehicle weight and value of the vehicle. Accessories extra, as specified.
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In Indian conditions, the vehicles are subject to many hazards like potholes, open
manholes, puddles, untarred roads, traffic management system, poor pedestrian management, and
absence of footpaths for pedestrians, jaywalkers, increasing number of accidents etc. which
accentuate the need for automobile insurance. Some of these hazards are discussed below:
i) FOOTPATHS
As footpaths are encroached by hawker, pedestrians have a tough time dodging vehicles to
reach the other end of the road. Large potholes and manholes are a common sight and during the
monsoon the situation can get only worse causing untold damage to your vehicle.
ii) DRUNKEN DRIVING
Drunken driving is another very common feature. Be it a car, a two- wheeler, or even a
truck, drunken driving is one of the major reasons for increase in accidents. Through drunken
driving is a punishable offence the penalty has hardly proved to be a deterrent.
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The economic rationale for insurance may be that it affects peoples decision to drive.
Some people are likely to forgive driving if the insurance is made compulsory insurance is made
compulsory since it acts as a financial disincentive. Another could be that it encourages people to
drive safely, which may reduce of risk. Those who criticize compulsory auto insurance plead that
it results in lowering the disposable income or it results in lowering the disposable income or it
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You can transfer your existing No Claim Bonus from any Insurance provider
ranging from 20% - 50%
Instant claims assistance and instant updates on your claim status on sms though
our 24x7 call centers are available.
Preferred workshops give you access to hassle free inspection, high service
standards and cashless settlement of claims in event of an accident/breakdown
Instant online policy renewal and issuance in just 4 easy steps that allows you to
have a peace of mind for another year.
With 24x7 assistance, you can be sure we will be there for you whenever you need
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According, the legal heir of the deceased driver filed an application to the labour
Commissioner and an Award of Rs. 1, 50,000 was passed against the employer. Mr. Tom,
equipped with an Act Policy, approached the insurance company, who in turn satisfied the
Award. The legal heir of the driver received the compensation from the labour court soon after
and everyone was happy.
The liability for compensation as per the Workmens Compensation Act, depends on the
wages of the employee and his age, and represents mainly the loss of earnings. However, other
losses representing mental pain and agony for the family, loss of consortium, future expenses on
dependents and loss of prospective earnings are not accommodated in this compensation.
The legal heir of the driver, in the instant case then approached the Motor Accident
Claims Tribunal, demanding a compensation of Rs. 1, 00,000 towards these losses. The tribunal
passed an award of Rs. 50,000, found reasonable as per provisions of Common Law and Fatal
Accidents Act. Mr. Tom had an Act Policy, which did not cover this liability, and he saddled with
the responsibility of satisfying the court Order. You can imagine the financial burden he had to
bear. Had he taken to face this difficulty. The insurance company would have paid this additional
amount of compensation too. It is, therefore, always beneficial and advisable to take a
comprehensive policy covering these liabilities.
EXCLUSIONS TO THE COMPREHENSIVE INSURANCE COVER
This insurance does not cover loss or damage caused due to:
1. Driver being under intoxication
2. Vehicle being driven by a person not holding an effective,
valid licence. It also does not cover:
3. Damage to tyres (unless the vehicle is also damaged).
4. Wear and tear, mechanical breakdown.
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6. Report to police: a copy of the FIR and Panchanama is required wherever third parties are
involved in an accident.
7. Survey Report: surveyor ascertains the damage, assess the quantum of payable claim, verify
vehicular documents and confirm that the loss/damage being claimed for is in conformity
with the narration of the accident. Wherever replacement of p [arts is allowed surveyors with
the narration of the accident. Wherever replacement of parts is allowed surveyors physically
verify serial numbers as appearing on major parts, which carry such numbers.
1.9.2 PROCEDURE:
In order to proceed for claim, the insured immediately informs the insurer.
The policy documents are verified to ensure that the policy is force and the loss is entered in
the claims register and the claim form is issue to the insured to be completed and returned.
The insurer, immediately on receipt of intimation of loss, either in writing or over telephone,
a surveyor is appointed based on the estimate.
In case of major accidents, the insured would be asked to arrange for photographs of the
vehicle at the spot of the accident, showing all the external damages and the number. Plate of
the vehicle. The photo expenses are to be reimbursed upto Rs. 500. Alternatively, the insured
may inform the nearest office of the insurer to arrange for such photographs.
The survey report is examined and settlement is done based on surveyors recommendations.
If reinspection after repair is considered necessary it may be conducted by the same surveyor
who has assessed the loss.
If for any reason, to be specified, the driving license cannot be produced, the claim may be
considered only on the basis on non-standard basis. However for settlement of such claims
the authority is not endorsed for tourist taxis, since, different practices prevail in different
states, it is on the basis of the practice. Prevailing in the state where the accident occurs and
this will be decided by a manager and above in the RO.
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The survey report correctly indicating the cost of parts allowed for replacement
Claims being settled on the basis of a report of reinspection after repairs by the surveyors
certifying that the repairs and replacements have to be obtained and verified.
As per the provision of the Motor Vehicles Act, the new numbers have to be incorporated in
the RC book.
Insurance company be informed about the incorporation of the new numbers in the RC book
for endorsing on the policy document to facilitate settlement of future claims.
Where the vehicle is totally damaged or when the net cost of repairs is almost close to the
market value of the IEV the claim could be considered to be a total loss. Such total loss
claims should be encouraged on net of salvage basis i.e., salvage being retained by the
insured and an appropriate amount towards salvage value as determined by the surveyor in
consultation with the company be deducted from the total loss amount.
However, if the insured to retain the salvage, arrangements should be made for the safe
custody is informed vehicle to prevent further loss or damage.
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genuineness of the loss, final investigation report may be waived provided the insured sends
a registered AD letter to the SP/ACP requesting that the insurer should be informed of any
recovery.
2. Total Loss due to Theft: Unless claims setting authority is fully satisfied, investigation of
the theft to be arranged by an investigator who may be appointed with specific terms of
reference.
3. The following documents should be collected from the insured in addition to a certified copy
of the FIR, for considering on account payment of the admissible claim after expiry of 90
days from the date of loss.
Surrender of the Registration Book and the Tax Book to the insurer duly transferred in the
name of the insurers. The RTO is to be informed about the theft of the vehicle and this should
be entered in Tax Book so that further tax will not accrue.
Certificate of insurance and the original insurance policy, if not stolen with the vehicle.
Investigation Report
or on expiry of a suitable waiting period from the date of the on account payment, after
obtaining the discharge voucher in full and final settlement of the claim.
5. the police and the registration authorities and the NCRB should be notified in writing about
disposal of the claim on total loss basis following theft of the vehicle. They should be
requested to advise from the police regarding recovery of the vehicle, necessary steps for
taking possession of the vehicle from the police custody should be taken and, if necessary, an
advocate should be appointed for filing recovery application in the court.
6. Municipal Authorities, where applicable and the RTO should be advised by registered letter
with Acknowledgement. Due to record non use of the vehicle on account of theft and about
the cancellation of the Insurance Certificate.
7. If the vehicle is recovered subsequently, the insured will have the option to repay the claim
amount already paid and retain the recovered vehicle. If the vehicle is found damaged, the
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insured will be indemnified against loss of damage. The insured should be advised to obtain
recovery memo from the police and to get the vehicle surveyed at the police station before
taking delivery, as mentioned under loss theft claims.
8. In cases of criminal breach of trust each case should be dealt with an individual basis
depending upon facts of each case and subject to legal opinion.
1.9.5 THIRD PARTY BODILY INJURY CLAIMS: FATAL AND NON FATALFOR
MOTOR INSURANCE.
1. Intimation of Claim: Intimation about an accident resulting into third party claim is received
through various sources:
Claimant
MACT/Courts by notice
Through accident report from police in Form 54 prescribed under Central Motor Vehicles
Rules, 1389.
2.
Investigation: Investigation about the accident to collect the relevant data to quantify
reasonable and just compensation as per the specified formats in respect of all third party
claims is mandatory. The companies should ensure that this investigation helps the insurance
company in finalizing out of court settlement at the earliest.
3.
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4. Policy Copy: Duly certified true copy of the complete policy with the relevant clauses and
endorsements as actually attached with the original issued covering the vehicle at the
material time of accident.
5. Driving license: In case it has been observed that driver was not duly licensed the necessary
information should be given to the advocate. Through under Section 149(2) of the MV Act,
1988, Insurance Company has no liability if the driver is not duly license rests on insurance
company and this obligation is required to be discharged fully to the satisfaction of the court.
6. Compliance Policy Conditions: If a breach of a specific condition has been observed it
should be brought to a notice of the Advocate to enable proper defense if possible.
7. a) Written statement on behalf of the insurance company incorporating all defenses available
as enumerated under Section 149 of MV Act should be promptly filed.
b) Wherever necessary when there is collusion between the insured and the claimants or
when the insured fails to defend claim, the companys advocate must be instructed to obtain the
MACTs permission under Section 170 of the MV Act to defend the claim on merits.
8. Payment of No Fault Liability Claims: If Liability under affected policy is established after
taking into consideration the foregoing defenses, company should take immediate steps to
deposit No Faulty Liability amount as per Section 140 of the MV Act, 1988.
9. payment of Fault Liability Claims: Companies may initiate action to settle such claims
either through
Lok Adalats
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10. Jald Rahat Yojna: Section 152 of MV Act, 1988 authorizes insurance company to settle
motor third party non-fatal bodily injury claims where claimant is an adult without claimants
taking recourse to MACTs. Industry has already Launched the Scheme since 1991.
1.9.6 GUIDELINES FOR PLACING CLAIMS IN LOK ADALATS
FOR MOTOR INSURANCE.
Maximum participation and disposal of large number of claims in lok Adalats sessions should
be in short.
Companies should placed the claims normally falling within the following parameters before
lok Adalats:
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Companies should not accept conditional settlement such as subject to verification of certain
documents, production of documents etc.
On having reached the agreement for compromise settlement concerned MACT issues a
Consent Order specifying inter alia the period during which the agreed amount should be
deposited. On receipt of such order, companies must deposit the amount as agreed to with the
MACT within 30 days from the date of award as per schedule.
In the event of lok adalat for pending appeals before High Courts is organized, such claims
where quantum of compensation is in dispute may be considered.
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Chapter 2
third party liability coverage for liability to third parties harmed by negligence of an
insured person;
first party medical payments coverage for the insured, or in states with no-fault or related
laws, personal injury protection coverage for the insureds medical expenses and loss of
income;
uninsured and under insured motorists coverage for losses caused to an insured by drivers
without liability insurance and drivers with comparatively low liability insurance limits; and
The auto liability coverage in the personal auto policy provides broad coverage for liability for
bodily injury and property damage to other parties arising out of the use of an automobile by an
insured person. As is customary with the liability insurance, the insurer also agrees to defend the
insured and bear the defense costs and is responsible for negotiating and setting the claims.
Personal auto liability coverage may be sold with a single limit that specifies the maximum
amount that the insurer will pay for all damages from a single accident.
Under the first-party auto medical payments coverage, the auto owner can receive payment for
medical expenses arising out of an accident. Coverage is for the medical
expenses for the named insured and family members hurt in any auto and other persons that are
hurt while occupying a covered auto. Coverage limits under such policies are comparatively low.
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In U.S.with no-fault or related laws, the personal auto policy includes personal injury protection
coverage for the named insured, family members, and parties hurt while occupying a covered
auto instead of medical payment coverage.
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CHAPTER 3
Automobile insurance pricing has always been a matter of controversies to the consumers,
service providers and the regulators. Auto claims have increased significantly in India since last
10 years. Auto insurance rates charged to different customers reflect differences in the discounted
expected costs of providing coverage. In order to classify different persons into homogenous
groups with respect to expected claim costs, insurers generally use rate classification system that
includes:
driver classes that reflect the characteristics of individual insured, and territorial rating to reflect
expected differences in claim costs for people that live in different geographical areas (holding
individual characteristics constant). Of course, physical damage rates also depend on the type of
vehicle, given evidence that certain vehicles are more likely to be involved in at-fault accidents.
The major factors considered in establishing driver classes and the use of territorial rating factors
are:
DRIVER CLASSES
The parameters are Age, Gender, and Martial Status, use of automobile, driving education and
driving record. The insureds in younger age group, the males, the married ones and new and
inexperienced drivers have on average high accidental claims. The loading on the premium
increases by the numbers and amount of accident claims.
TERRITORIAL RATING
Large cities have higher average claim costs followed by suburban areas, smaller cities, and
small towns or rural areas. In India, the geographical areas have been classified into Group A and
Group B.
Motor/ Automobile Insurance business in India is governed by the All India Motor Tariff, which
lays down the premium rates, terms and conditions. The main factors taken into consideration for
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rating in India are vehicle classifications on several parameters, the geographical area of
operations and experiences.
VEHICLE CLASSIFICATION
Vehicles are generally classified on the basis of its technical specifications, its value or use.
TECHNICAL SPECIFICATIONS (The Type)
The typology of a vehicle is more or less based on its cubic vehicle weight and its carrying
capacity. Heavier vehicles are more exposed to accidents since the resultant damages they incur
are more. Similarly, vehicles with higher carrying capacity expose more passengers to risk.
Therefore heavier vehicles attract higher premium rate. In private cars, taxis and motorcycles, the
factor is the cubic capacity. The more the cubic capacity, the higher the premium rate. Whereas
in goods-carrying commercial vehicles and passenger-carrying commercial vehicles, the criteria
are gross vehicle weight and passenger carrying capacity respectively.
THE VALUE OF THE VEHICLE
The premium rate is applied on the value of the vehicle to arrive at the premium payable. It is the
owner/insured who has to select a correct value of the vehicle and declare the same for
insurance. This value is known as the Insureds Estimated Value (IEV) in motor insurance and
represents the sum insured.
Normally, this value is arrived at by considering the age of the vehicle and its present purchase
price. A Maruti 800 was purchased in 1998 for Rs. 1, 80,000/- considering the conventional 10%
depreciation each year and the present purchase price of a similar vehicle at Rs. 2,00,000/- the
IEV for year 2000 is Rs. 1,80,000 less 20% of Rs.2,00,000 = Rs. 40,000.00
IEV = Rs. 1, 40,000.00
However, this is not sufficient for deriving the correct IEV of the vehicle in terms of motor
insurance. In motor insurance, the basis for payment of claims in the market value of the vehicle
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at the place and time of loss. This market value may be understood as, the price that the vehicle
would fetch in the second-hand market. For certain vehicle, there is a good demand in the
second-hand market. Maruti is one of them. The 1998 model mentioned above may fetch a price
of say, Rs. 1, 50,000. In such situation, the correct IEV for the Maruti of 1998 model should be
Rs. 1, 50,000.
Now take the case of a Premier Padmini car of 1998 was say, Rs. 1, 80,000/- the depreciated
value in year 2000 works out to Rs. 1,40,000. But, the second-hand value would be at most Rs.
30,000, since it has virtually no demand in the market.
In this case, the correct IEV should be Rs. 30,000/- only. It is not worthwhile to insure your
vehicle at a higher value since that will increase the premium payable but, in case of total loss,
only the market value would be payable.
In motor insurance, the IEV is the limit of liability per accident and not for the entire period of
insurance. In cases of partial loss or losses, which may be made good by repairs, there is no limit
to the number of accidents in any period of insurance. Suppose the Premier Padmini car, as
described above, claims for two accidents in the year 2000, the first for an amount of Rs.
20,000/- and the second for Rs. 15,000/- under its insurance policy with IEV of Rs. 30,000/- both
these claims can be recovered from the insurance company, since their respective values are
within the limit of IEV, irrespective of the fact
that the insured in this process recovers more amount during the period of insurance than he was
insured for.
However, if the vehicle is totally lost or damaged and cannot be repaired, the insured would be
paid the market value or IEV, whichever is less. It is very important to select a correct IEV for
insurance. There is a tendency of motor vehicle owners to declare a lower value for insurance to
reduce the premium expenditure. Although, insurance companies
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check the IEV for its sufficiency before accepting the insurance, this is not a correct practice as
the insured is exposed to a greater loss in case the vehicle is totally lost or damaged.
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Zone A
Andaman &Nicobar Islands
Arunachal Pradesh
Assam
Bihar
Delhi
Haryana
Himachal Pradesh
Zone B
Mumbai City
Nagaland
Orissa
Punjab
Rajasthan
Sikkim
Tripura
Lakshadweep Islands
Manipur
Mizoram
Uttar Pradesh
West Bengal
Chapter 4
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They used to get commission as little as 5% and that too in non-financed cars.
There was no system to chase renewals and the only interaction point with the insurance
company was the development officer.
In short, insurance was a low priority for the dealer as well as the manufacturer.
On the other hand from the insurer's perspective, motor insurance was a loss-making portfolio
and at best a nuisance. There was no real strategy to control claims and the poor customer
interface was accentuated with excessive dependence on independent surveyors. There was no
data
capturing
oder
analysis
for
customer
segmentation.
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dealer centric business model, where commission income was increased, and introduced better
customer convenience by enabling policy issuance at dealership location. As a result, body shop
income increased by 100%. We also had strategic partnership with auto manufacturers like
Maruti Udyog Limited and Ford Motors. We are looking at this portfolio with a strong
commitment and our focus would be on data capturing/ analysis besides our core competence in
claims management and service.
CURRENT SCENARIO
The scenario is much different today and motor insurance gets its due importance. Motor
insurance today constitutes 60% of the portfolio for most of the general insurance companies in
the world. The trend would be the same in India also. In 5 years, the motor insurance is slated to
increase from Rs. 8,000 crores to Rs. 20,000 crores. Currently, it is 41 % of the total general
insurance business up from 36% five years back. The current state of motor insurance as
prevailing today can at best be summarised as below
Insurance has become the important driver for dealer profitability and customer satisfaction;
Motor insurance especially private cars, is an area which all insurers want to develop;
Continuous increase in cost and charges for labour & parts and higher awards for third party
claims are pushing the claims ratio up.
The next paradigm shift could happen when de-tariffing happens. The fastest growing
regions are Deihi, Andhra Pradesh, Karnataka, Maharashtra and Gujarat.
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only
way
to
survive
in
price
driven
market.
Country like Italy, which was de-tariffed in mid-nineties provides some good learning points.
The size of the country would be smaller than any of an average Indian state; however, the
country has been divided into 620 geographic risk zones for insurance rating purpose and
insurance companies use up to 76 variables for rating. In contrast, India has only 2 zones so far.
Further, there are no proper tariffs available.
One thing that is certain among all the uncertainties is that de-tariffing would change the scenario
dramatically and may also impact the biggest profit driver for the dealer. Some of the changes
that I foresee areas below
Premium rates could vary significantly based on make, model & geographic zones.
Dealers will face increased competition from agents in renewals as "information" in proposal
forms is much better at the agents hand.
Insurers may be forced to develop non-dealer channels to reduce commission & average
claim size as pressure on margin will increase.
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WHAT'S
SEMESTER VI
IN
IT
FOR
DEALERS?
A pertinent question in the minds of the dealers would be - "What's in it for us?" Well, it can be
an opportunity or threat as an individual sees it. I would say, it is an opportunity for both the
dealers and the insurers provided you look for strong partner and long-term partnerships with
insurers for mutual benefit, such as
Repair instead of replacement - this will be beneficial for dealer & insurer;
Big dealers have opportunities to set up facilities for repairing all makes and models.
A hypothetical example of how repair instead of replacement would be beneficial to the dealer
and the insurer can be explained as below
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Chapter 5
Case study
Claims settlements
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Chapter 6
AN ARTICLE ON MOTOR INSURANCE
WHY CAR INSURANCE IS A MUST
Kairav Shah in Mumbai
May
07,
2007
Insurance, suddenly, has taken centre-stage because of the increasing penchant of individuals
towards all kinds of loans. With the consumer becoming more loan-friendly, the obvious fallout
has been the requirement to stack up on insurance as well.
However, taking insurance has not been made mandatory by most banks. Of course, there is an
occasional bank that might insist (read request) you to take an insurance policy, if you are taking
a home loan. But legally, they cannot force you to take one.
But the only purchase where it is mandatory to have an insurance is in case of purchasing
automobiles. That is, it is imperative that you have car insurance as soon as you purchase your
car.
In fact, according to the Motor Vehicles Act, 1988, it is mandatory for every owner of a vehicle
plying on public roads to take an insurance policy to cover the amount, which the owner
becomes legally liable to pay as damages to third parties as a result of accidental death, bodily
injury or damage to property. Also, it is necessary for you to always carry the certificate of
insurance in the vehicle as proof.
There are basically two types of motor insurance policies. Type I, which is better known as Third
Party Insurance (Form A), is the one which is compulsory. This covers the policyholder against
damage to a third-party's property or the third parties themselves.
In simple words, if you were to run into another car and cause damage to that car and injure the
occupant(s) of that car, a third party only policy will pay for the repair of the other vehicle, and
will pay for any medical claims or injuries suffered by the occupant(s) of the other car and any
passengers in your car other than you.
But this policy does not cover the costs of repairing your own vehicle. However, you could add
some riders to this policy that would cover for your legal liability to pay compensation for:
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Liability is covered for an unlimited amount in respect of death or injury and damage to thirdparty property for Rs 7.5 lakhs under commercial vehicle and cars and Rs 1 lakh for scooters and
motor cycles
Moreover, there are additional riders for third-party fire and theft as well. That is, if your vehicle
is stolen or is set on fire, these riders cover them as well.
Type-II policy, better known as the comprehensive car insurance cover (Form B) covers payout
for third-party damages and injuries, will pay out in the event of your vehicle being stolen or set
on fire, and will also pay for any damage to your own vehicle (regardless of whose fault the
accident was).
In addition to the coverage under liability only, this policy covers loss or damage to the insured
vehicle and its accessories due to fire, explosion, self-ignition or lightning, burglary, riot and
strike, malicious act, terrorist act, earthquake, (fire and shock) damage, flood, typhoon,
hurricane, storm, tempest, inundation, cyclone and hailstorm, transit by road, inland waterway,
lift, elevator or air. So, this brings us to what type of car insurance cover is best for you? As a
general rule of thumb, the following points are worth noting:
If you are young and driving an inexpensive first car then you will probably find the cost of
comprehensive motor insurance very high. For instance, a 20 year-old buys a second-hand car
for Rs 1.5 lakhs. In this case, the cost of a comprehensive policy would be higher as compared to
the cost for a third-party fire and theft policy.
Of course, if there is an accident and you are at fault and your car is badly damaged, then it you
will have to pay for the repair or replacement of the car. But if you are young and driving a more
expensive car, then it will make sense for you to have comprehensive insurance.
Remember that the no-claim bonus follows the individual and not the vehicle. So you will be
able to garner good discounts on renewal of the policy. The bonus ranges from 20 per cent to 50
per cent, depending on the number of years for which no claim has been made. Some important
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exclusions under this policy include wear and tear, breakdowns, consequential loss, loss when
driving with invalid driving licence or under the influence of alcohol, use of vehicle otherwise
than in accordance with limitations as to use, etc.
Now, you can do online processing of claims and premium payments. This implies that life is
going to become much easier for the end user.
The writer is head of financial planning at Sykes & Ray Equities.
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Chapter 7
Bajaj Allianz is a joint venture between Allianz AG one of the world's largest insurance
companies, and Bajaj Auto, one of the biggest 2 and 3 wheeler manufacturers in the world. Bajaj
Allianz is into both life insurance and general insurance.
Allianz Group is one of the world's leading insurers and financial services providers. Founded in
1890 in Berlin, Allianz is now present in over 70 countries with almost 174,000 employees. Bajaj
group is the largest manufacturer of two-wheelers and three-wheelers in India and one of the
largest in the world.
Today, Bajaj Allianz is one of India's leading and fastest growing insurance companies.
Currently, it has presence in more than 550 locations with over 60,000 Insurance Consultants.
MOTOR VEHICLE INSURANCE
Technology has made our daily life simpler in various ways.Motor vehicle is an invention which
has made daily commuting easy. It is convenient and fast and saves our time. Though it is easy to
own vehicle it is expensive maintaining a motor vehicle especially in case of damage caused to
your vehicle due to some unavoidable circumstances or accidents. Bajaj Allianz's Motor Vehicle
policy helps you in maintaining your vehicle in such situations.
UNIQUE FEATURE
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ADVANTAGES
BENEFITS
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clicks have been about premium calculations for third party insurance. Within the first three
days, 130,000 customers received their individual quotes.
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This might give a real boost to the Bajaj vehicle insurance market and could support the Bajaj
convergence with Europe.
CONCLUSION
India is witnessing a boom in car and bike sales and it could not have come at a better
time. The burgeoning middle class and the improvement in roads and highways have only
accentuated the vehicle sales. The spill over effect of this boom has let the motor insurance
portfolio of insurance companies also on the growth highway.
Todays consumer has became more conscious about his health and wealth also they are
becoming more demanding due to awareness of insurance therefore, Motor insurance companies
are facing challenges of Best service level at the lowest price. This creates competitions between
insurance companies. However, Insurance Companies are trying to overcome the challenges by
providing 24/7 assistance to customers for all product queries and claims information.
As compared to Insurance abroad, motor insurance companies in India still have a long
way to go. Since, India is booming in car and bike sales and even with the awareness of motor
insurance in people motor insurance company is going to have a better time in future.
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RESEARCH DESIGN
DATA COLLECTION
PRIMARY DATA COLLECTION :In this chapter the focus will now shift to the choices of researchers for collecting
primary data. The researcher will opt for either quantitative research methods or qualitative
research methods or a combination of the two. For all practical purposes, usually not much about
a marketing problem is known to the researcher, so they will start with the survey method of data
collection.
This chapter will involve discussions on sampling as the basis of survey, questionnaire and
interview methods of data collection.
SURVEYS:One of the most preferred methods for collecting primary data is the survey method.
The biggest advantage of the survey method is that at a time a lot of information (or data) about a
single respondent can be obtained. And secondly the versatility of this method enables the
researcher to mould the survey method to the research objectives, in any setting - be it the
bubbling youngsters, growing teenagers, mobile youth or aging executives.
Usually, surveys are designed so as to collect variety of information on various
diverse topics and subjects. We will focus our attention on three popular method of conducting
research.
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A.
Personal interviews.
B.
Telephone interviews
A.
PERSONAL INTERVIEWS:
Generally personal interviews are classified based on the respondents to be conducted
the
personal
interview
session,
the
interviewer
and
interviewee
simultaneously interact and influence each other. The interview environment is selected based on
the type of data, which is being sought.
i. Face to face or Door to door interview:
This has traditionally been considered as the best survey method. This is because of the
various advantages involved in a face to face interaction between the interviewer and respondent
enabling:-
Conducive, familiar and comfortable environment for the interviewee making the
interaction more easy and appropriate.
TELEPHONE INTERVIEW:
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A large class of consumer behavior problem can be attempted to be solved by adopting the
telephone interview method of collecting information . This is also being accepted as a popular
as a popular method especially with the cost and non-response problem of personal interview
becoming more acute .
The telephone interviewing process though quite similar to personal interview involves
certain steps in the form of :
a.
b.
c.
d.
Work out and clarify the convenient time of the respondent for interview .
e.
Books
News papers
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