The
Proposed Motor Vehicles (Amendment) Bill, 2016, introduced in the Lok
Sabha on August 9, 2016 to shield insurance companies by capping their
liability to compensate holders of vehicle insurance policies in the
country would render millions of registered owners of vehicles,
vulnerable, and would ultimately subjecting them to random, blind and
unlimited risk, in case of a road mishap. Exposing the millions of third
party motor insurance policy holders contributing Rs. 21,242 Crores as
premium, with an express intent to protect the fortunes of the 27
general insurance companies of the country through a statute is beyond
any tenable rationale. Vehicle owners in the country, numbering 21
crore, inspite of having an insurance policy, will now run the risk of
paying accident claims out of their pockets in cases, wherever the
damages would exceed over and Rs. 5 Lacs in cases of grievous injuries
and Rs. 10 Lacs in cases of death, if this proposed amendment is passed.
This ill-intented law, unilaterally favoring insurance companies,
mostly foreign, against millions of poor policy-holders would foil the
sole purpose of vehicle insurance. The basic aim of insurance is to
defray individual risk collectively over a vast group of premium
contributors, especially when the risk apprehended is likely to be
beyond all the means of individuals. It is beyond imagination any saner
person that a small taxi or lorry owner dwelling in a slum-hut, or a
middle or lower middle class car owner would be able to meet the damages
out of his pocket, if they exceed over the stipulated cap of Rs. 5-10
lacs. Thesze damages may go to 20 lac, 50 lac, 1 Crore or even more in
some cases. Even, for any middle income group policy holder, who may
even be owning a small house or apartment and some assets, it would be
difficult to pay damages by liquidating all his/her assets. A policy
holder buys an insurance policy solely to safeguard himself and his
family from being ruined out of wageries of any fatal accident, if it
ever happens and any liability to a third party arises against him/her.
The sole purpose of insurance is to mitigate the risk, which is beyond
individual’s capability. Indeed, when this proposed law would limit the
liability of insurer, who his making fortunes out of insurance business,
and subject the policy holder to unlimited risks, would create chaos
after every fatal accident, numbering 5 lacs per annum. Even a
billionaire would not hesitate to hire a bully to frieghten the third
party victim and to compromise by deflating his/her claim within Rs.
5-10 limit or else face illegitimate harassment. A new mafia segment may
emerge for forced mediation through bullying for deflating insurance
claims after accident.
Besides, exposing 21 Crore registered vehicle owners to a such random, blind and unlimited risk, to pay damages, themselves over and above Rs. 5-10 lac inspite of their buying an insurance cover, just to guarantee higher profits to 27 general insurance companies, of which 21 are private and mostly with foreign equity, in the aftermath of opening Foreign Direct Investment (FDI) in insurance creates a doubt that the foreign players are now employing the State to arbiter in their favour, against millions of poor unorganized policy holders. For years since 1956, the public sector insurers were doing it (third party vehicle insurance) at much lower premiums. Cross subsidisation from one product to the other has been a standard practices and is the need of hour for social and economic justice. All the public sector general insurance companies had been in overall profits even after such cross subsidisation inter se different products, especially when the claims to premium ratio was above 200 percent. Indeed, in cases where the claims to premium ratio is high and the claims exceed over the premium collection, it is not the company which has to bear it. The companies normally go for reinsurance, and the reinsurance companies pay such excess damages. They also do reinsurance for a vast number of companies and make overall profits. So, there appears no necessity for the government to worry, just to marginally reduce the reinsurance premium of insurers.
It is true that the premium collection in 2015-16 from third party motor insurance was only Rs. 21,242 crores and the companies have been saying that the claims to premium ratio is now 140%. Though this ratio is much lower than earlier, yet, the overall premium collection in general insurance is Rs. 96,394 crores, which helps them to have enough cushion to pay reinsurance premium to get excess liabilities reimbursed. Thus, this deficit of theirs is also being defrayed via reinsurance, and not a direct liability over the general insurance companies. So, it is matter of some what higher outgo of reinsurance premium only. Therefore, in case of payment of full damages too, the insurance companies are not required to bear the entire burden of excess damages over premium collection, as it is being reimbursed by reinsurers. But, it would be highly nightmarish for hundreds of thousands of vehicle owners who shall have to bear the damages over this limit of Rs. 5 or 10 lacs and all such families would be ruined, if the damages to be paid to the victims or heir of victims in case of accident exhorbitantly exceed the limits. In all such hundreds of thousand cases the vehicle owner at times may not be able to pay the damages over this cap being proposed even after selling all his/her family assets, including the house or hutment owned by him/her, if any. No single company is going to incurr losses turn bankrupt, even without any such cap, but hundreds of thousand of middle and lower middle class families would be rendered bankrupt after enactment of these limits who might be required to pay claims above the caps. Moreover, in majority of road accidents the claims are much less than the caps being proposed. In India 5 Lac road accidents are being reported every year in which 1.5 lac people lose their lives. The focus of the government should be to curb road accidents through improved traffic monitoring and other means, emulating other countries instead of exposing poor policy holding individuals and families to unlimited risks, which might totally ruin hundreds of thousand of such families, aimed just to help the insurance companies save some pettys sums on reinsurance.
Moreover, looking towards the poor ratio of claims to premium in motor insurance segment the Insurance Regulatory and Development Authority (IRDA) has already hiked the vehicle insurance premiums by 25 to 40% for 2016-17. For small cars the third party motor insurance premium is raised by 40% from Rs. 1468 to Rs. 2055 and for SUVs and luxury cars, it has been raised only by 25% from Rs. 4931 to Rs. 6164. Likewise, for other vehicles as well, the professionally competent statutory regulatory authority, the IRDA has raised the premiums in line with the risk and liability involved. Therefore, no where is the need for the government to cap the liabilities of the insurance companies, exposing 21 Crore odd vehicle owners in the country to random, blind and unlimited risks. Why the government is bent upon to help the 21 private general insurance companies to add few crores into their profits and, enabling them to save these few crores of Rupees, being spent upon reinsurance. If insurer is not required to compensate the true loss, what does insurance mean?
The basic and universal doctrine of insurance or the idea behind insurance is to secure the policy holder, unable to foot a hefty bill of damages, if something untoward happens. If the victim or the legal heirs of a victim of road accident are entitled for claim of Rs. 20 or 50 Lacs or even more say Rs. 1 crore, then after capping of liability through this proposed amendment, the insurance company would be liable to pay only up to Rs. 5 Lac in cases of greievous injury and up to Rs. 10 Lacs in cases of death. The balance damages shall have to be borne by the vehicle owners out of the 21 Crores vehicle owners, majority being very poor, would not be able to bear this hefty damage, even arfter liquidating all their family assets. Where is the need for the government to arbiter in favor of wealthy foreign companies against 21 crore, mostly poor, vehicle owners of the country, arbitrarily and against all the well established doctrines of insurance.
It is more than strange that the proposed amendment also mandates that central governemnt would prescribe a base premium and the liability of an insurer in relation to such premium for a motor insurance policy, in consultation with the IRDA. Today, when the IRDA, an expert body has been taking care of premium determination and has been duly revising of every year to take care of insurers’ interests where is the need to arbiter in favor of there companies? Prior to the entry of foreign players the claims to premium ratio of public sector companies was above 200%. Yet, they all were afloat via reinsurance. It has now come down to 140% in 2015-16 and would further dip below 110% after this year’s premium revision, for 2016-17. Situation can be further improved in favor of the insurance companies, merely by a further marginal increase in premium. Therefore, rendering 21 crores poor vehicle owners vulnerable by exposing them to random, blind and unlimited risk, especially when this 40% excess of claims over premium is not at all a direct burden of insurance companies as they also go for reinsurance is unwarranted and unjust. The companies have to bear only a marginal cost in the form of reinsurance premium out of their total revenue. So this proposed amendment Bill needs to be reconsidered.
Besides, exposing 21 Crore registered vehicle owners to a such random, blind and unlimited risk, to pay damages, themselves over and above Rs. 5-10 lac inspite of their buying an insurance cover, just to guarantee higher profits to 27 general insurance companies, of which 21 are private and mostly with foreign equity, in the aftermath of opening Foreign Direct Investment (FDI) in insurance creates a doubt that the foreign players are now employing the State to arbiter in their favour, against millions of poor unorganized policy holders. For years since 1956, the public sector insurers were doing it (third party vehicle insurance) at much lower premiums. Cross subsidisation from one product to the other has been a standard practices and is the need of hour for social and economic justice. All the public sector general insurance companies had been in overall profits even after such cross subsidisation inter se different products, especially when the claims to premium ratio was above 200 percent. Indeed, in cases where the claims to premium ratio is high and the claims exceed over the premium collection, it is not the company which has to bear it. The companies normally go for reinsurance, and the reinsurance companies pay such excess damages. They also do reinsurance for a vast number of companies and make overall profits. So, there appears no necessity for the government to worry, just to marginally reduce the reinsurance premium of insurers.
It is true that the premium collection in 2015-16 from third party motor insurance was only Rs. 21,242 crores and the companies have been saying that the claims to premium ratio is now 140%. Though this ratio is much lower than earlier, yet, the overall premium collection in general insurance is Rs. 96,394 crores, which helps them to have enough cushion to pay reinsurance premium to get excess liabilities reimbursed. Thus, this deficit of theirs is also being defrayed via reinsurance, and not a direct liability over the general insurance companies. So, it is matter of some what higher outgo of reinsurance premium only. Therefore, in case of payment of full damages too, the insurance companies are not required to bear the entire burden of excess damages over premium collection, as it is being reimbursed by reinsurers. But, it would be highly nightmarish for hundreds of thousands of vehicle owners who shall have to bear the damages over this limit of Rs. 5 or 10 lacs and all such families would be ruined, if the damages to be paid to the victims or heir of victims in case of accident exhorbitantly exceed the limits. In all such hundreds of thousand cases the vehicle owner at times may not be able to pay the damages over this cap being proposed even after selling all his/her family assets, including the house or hutment owned by him/her, if any. No single company is going to incurr losses turn bankrupt, even without any such cap, but hundreds of thousand of middle and lower middle class families would be rendered bankrupt after enactment of these limits who might be required to pay claims above the caps. Moreover, in majority of road accidents the claims are much less than the caps being proposed. In India 5 Lac road accidents are being reported every year in which 1.5 lac people lose their lives. The focus of the government should be to curb road accidents through improved traffic monitoring and other means, emulating other countries instead of exposing poor policy holding individuals and families to unlimited risks, which might totally ruin hundreds of thousand of such families, aimed just to help the insurance companies save some pettys sums on reinsurance.
Moreover, looking towards the poor ratio of claims to premium in motor insurance segment the Insurance Regulatory and Development Authority (IRDA) has already hiked the vehicle insurance premiums by 25 to 40% for 2016-17. For small cars the third party motor insurance premium is raised by 40% from Rs. 1468 to Rs. 2055 and for SUVs and luxury cars, it has been raised only by 25% from Rs. 4931 to Rs. 6164. Likewise, for other vehicles as well, the professionally competent statutory regulatory authority, the IRDA has raised the premiums in line with the risk and liability involved. Therefore, no where is the need for the government to cap the liabilities of the insurance companies, exposing 21 Crore odd vehicle owners in the country to random, blind and unlimited risks. Why the government is bent upon to help the 21 private general insurance companies to add few crores into their profits and, enabling them to save these few crores of Rupees, being spent upon reinsurance. If insurer is not required to compensate the true loss, what does insurance mean?
The basic and universal doctrine of insurance or the idea behind insurance is to secure the policy holder, unable to foot a hefty bill of damages, if something untoward happens. If the victim or the legal heirs of a victim of road accident are entitled for claim of Rs. 20 or 50 Lacs or even more say Rs. 1 crore, then after capping of liability through this proposed amendment, the insurance company would be liable to pay only up to Rs. 5 Lac in cases of greievous injury and up to Rs. 10 Lacs in cases of death. The balance damages shall have to be borne by the vehicle owners out of the 21 Crores vehicle owners, majority being very poor, would not be able to bear this hefty damage, even arfter liquidating all their family assets. Where is the need for the government to arbiter in favor of wealthy foreign companies against 21 crore, mostly poor, vehicle owners of the country, arbitrarily and against all the well established doctrines of insurance.
It is more than strange that the proposed amendment also mandates that central governemnt would prescribe a base premium and the liability of an insurer in relation to such premium for a motor insurance policy, in consultation with the IRDA. Today, when the IRDA, an expert body has been taking care of premium determination and has been duly revising of every year to take care of insurers’ interests where is the need to arbiter in favor of there companies? Prior to the entry of foreign players the claims to premium ratio of public sector companies was above 200%. Yet, they all were afloat via reinsurance. It has now come down to 140% in 2015-16 and would further dip below 110% after this year’s premium revision, for 2016-17. Situation can be further improved in favor of the insurance companies, merely by a further marginal increase in premium. Therefore, rendering 21 crores poor vehicle owners vulnerable by exposing them to random, blind and unlimited risk, especially when this 40% excess of claims over premium is not at all a direct burden of insurance companies as they also go for reinsurance is unwarranted and unjust. The companies have to bear only a marginal cost in the form of reinsurance premium out of their total revenue. So this proposed amendment Bill needs to be reconsidered.
