The Supreme Court has made it mandatory for the vehicle buyers to purchase three and five year TP policies during purchase of new cars and two-wheelers, respectively. This will reduce the risk of slippages in 2-5th year. The insurers have option of attaching single or multi-year OD policies along with such TP policies.

The new Motor Vehicle Act, 2019 (which increased traffic penalties on uninsured vehicles) is driving penetration in motor TP as well. The Act increased penalties for driving uninsured vehicles by 2-4 times (to Rs 2,000 for the first offence and Rs 4,000 for the second offence). Automobile sales witnessed the worst-ever drop in August across categories, with passenger car sales falling by as much as 41.09 per cent, according to data released by industry body Society of Indian Automobile Manufacturers (Siam).

Vehicle sales across categories, including passenger vehicles (PVs) and two-wheelers and commercial vehicles (CVs) stood at 18,21,490 units last month, as against 23,82,436 units in August 2018, a fall of 23.55 per cent. “With the decline in auto sales, OD premium growth is bound to decline. The spurt in TP premium is possibly due to the crackdown by the traffic police following the amended Motor Vehicles Act,” said an insurance sector official.

A comprehensive car insurance plan has two essential components: OD premium and third party (TP) premium. TP covers any damage or injury caused by the insured, to another person or property. A TP liability cover is mandatory in India under the Motor Vehicles Act, 1988 while OD is optional. Earlier, the IRDAI circular had stipulated a bundled cover, including OD insurance cover as a package product with a stand-alone motor TP insurance product — one year for OD bundled with long term TP cover for new car/ two-wheeler. Now this has been separated and vehicle owners can go for OD and third party separately. Bundling of cover for the OD portion was earlier permitted as an immediate requirement, keeping in view the date of implementation stipulated by the Supreme Court from September 1, 2018.

As per the new rules, policyholders have the option to renew the OD component of a bundled cover falling due on or after September 1, 2019, with the same insurer or different insurer, on an annual basis. “Vehicle owners often do not renew their policies beyond the first year policy which is attached to the purchase of the vehicle.

According to industry players, insurance compliance with CV operators is high but lower with cars in the interiors and the lowest in two-wheelers,” said a Kotak Research report.