India: Motor Insurance Companies’ New Move To Restrict The Claim Payout

Last Updated: 30 January 2013
Article by Megha Kapoor

Most Read Contributor in India, September 2016

General insurance companies have put a proposal in front of the Insurance Regulatory Development Authority (IRDA) to bring down fraudulent third party claims and cut losses.

As per the proposal, the insuree at the time of taking insurance shall be required to mention the names of all the people who would be driving the vehicle. In the event of an accident the insurance companies will be held liable for the claim only where the vehicle is driven by any of the persons mentioned in the list provided at the time of buying the policy. Meaning thereby if any person, other than that mentioned in the list, is driving the car, the claim would be rejected. Also, the insurance premiums will go up depending on how many names are mentioned in the list.

This may pave a way to the general insurance industry to boost their profitability as the industry is nowadays facing losses due to the either fake third party insurance claims or poor underwriting standards.

Insurance underwriting is primarily based on the analysis of claim experience by different portfolio sectors that relate to premiums and exposures.1 It includes how much coverage should be given to the client, how much premium he would pay for it, and whether the company should even insure the person. In underwriting, eligibility of customer to receive the insurance is analyzed. It involves measurement of risk of giving a client a policy and the rate at which the company should charge the client for that risk. This is a difficult task as current data is to be used for future use and the time period for which the data can be used is tough to determine or speculate.

There has been an increase in fake third party claims in the last few years. These fake claims cost insurance companies 10-15%2 of the premium incomes.

In the year 2010-11, incurred claims ratio of motor insurance was 102.69%3 compared to 84.51%4 for the year 2009-10. The loss ratios will be 213% for the current year, meaning thereby, for every Rs. 100 premium earned by the insurance companies, they would be paying Rs. 213 as claims.5 The finance ministry has asked Public Sector Undertakings to increase motor insurance premium to minimize their third party motor insurance losses. The losses of the state-run general insurance companies was Rs. 87, 604 crore6 for the year 2010-11 as compared to Rs. 85, 5017 for the year 2009-10.

In the exposure draft on Insurance Regulatory and Development Authority (Places of Business) Regulations, 2012, IRDA has proposed to make it compulsory for insurance companies who have completed 10 years of business to open not less than 25% of its new places of business in places having a population of less than 1,00,000. IRDA has asked to increase the presence of insurance companies in the rural areas. The insurance companies are condemning this move saying that there is no business opportunity in the areas with less than 1,00,000 population. According to IRDA, non-life insurance penetration in the country is 0.7%8 of the Gross Domestic Product.

Insurers have said that underwriting is difficult as they don't have external source data of customer behaviour. Various factors come into picture whilst underwriting such as, driving violations, driving history, accident claims history, vehicle maintenance, credit rating of client, purpose for which vehicle is to be used etc., as no external data source to verify driver behavior is available in India, it is difficult to determine premiums of customers.

Now, the insurers are thinking about using the data from the credit bureaus, Regional Transport Office, and police record to determine the insurance premium of their clients. Even CIBIL is in talks with the insurance companies to share its data with them so that they can use that data to decide the premium prices for new and prospective customers. CIBIL is also in process to approach IRDA with this, who is considering having a separate credit bureau for insurance.

Government of India is also proposing a separate Motor Vehicle Insurance and Compensation Legislation regarding the increase of third party premium, fixing the third party claim, obligatory underwriting of third party risk, delay in claims, compensation amount, fraudulent claims etc. The Motor Vehicles Act does not prescribe any claim limit for motor accidents, whereas the Motor Vehicles (Amendment) Bill suggests a cap of a maximum compensation of Rs. 10 lacs by the insurance company. Anything more will have to be paid by the owner.

Though IRDA, in March, had notified a 5-20%9 increase in the motor third-party premium applicable from April 1, 2012, the Calcutta High Court quashed it in June10 after transporters11 filed a writ petition in the court.

Whether the IRDA would approve these proposals is the big question. If this proposal becomes a reality, it would create havoc for the common man and would be downright harsh. The Indian society is such, where neighbours borrow from neighbours things, from sugar to cars. Anyone with a valid driving license can borrow a relative's or friend's vehicle. How exhaustive can a customer make his list? Increase in number of people in list also increases premium. Asking a person to make a restricted list about who can drive his car is unreasonable.

Motor insurance contributes to one third of the premium income for the non-life industry. Also, it has been experiencing losses and has a high ratio of claims payment. But shifting its failures to the shoulders of the policyholders by charging them with an increased premium and restricting them is not the way to boost itself. Insurance companies should work towards enhancing and improving its underwriting standards and research methods rather than putting the burden of their losses on the innocent customer, who already pays high premium rates.

IRDA's job is to make sure that the customers don't get trampled on by the insurance industry. It should work towards protecting the customers and regulating the industry in a way which best serves the customers.





4 ibid



7 ibid


9 supra note 5

10 Asansol Mini Bus Association & Anr. v. Union Of India & Ors (2012) 3 CAL LT 456 (HC). Decided on June 14, 2012.

11 Asansol Mini Bus Association and Federation of West Bengal Truck Operators Association

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.