Will harsh fines encourage people to buy insurance?

Under the new Motor Vehicles Act, the government has proposed heavy fines for various driving offences including driving without valid third-party insurance. But, did you know that nearly 45 percent of the vehicles on the Indian roads do not have a valid TP motor insurance?

The law says that every vehicle must have third party motor insurance. This policy protects the owner of the vehicle from any financial liability in case of an accident resulting in death/injury to another person. If s/he has a motor policy, the insurance company will pay the claim to the affected party. Without that, the vehicle owner will have to bear the hospitalisation expenses of the third party or pay a lump sum settlement to the family.

While there could have been an initial rise in the renewal of motor policies, this will be short-lived. On one hand, several state governments are already cutting the amount of fines charged. While on the other, the probability of being caught and fined multiple times is also low. Under the new law, the first time offender will have to pay Rs 2,000 and/or spend three months in jail for driving without a valid insurance. For further offences, the fine would rise to Rs 4,000. Earlier, the fine was only Rs 1,000 and/or three months jail.

Assuming that a person drives their uninsured car for 10 days in a month, he/she could end up paying Rs 38,000 in total if they get caught each of those days. In comparison, an annual insurance policy would only cost Rs 5,500-10,000 for a car.  But, the fines cannot be the only motivator to buy insurance. In 2018, almost 1,50,000 people died in road accidents across India. Across all modes of transport, Indian roads are the most responsible for fatal accidents. If each case, deceased’s kin was paid Rs 20 lakh, this is Rs 30,000 crore in settlements itself.

Paying Rs 20 lakh due to an accident can wipe off an individual’s life savings. In fact, a majority of us may not even have that much as savings and may be forced to mortgage property or sell liquid assets to raise these funds. On top of this, you will also have to bear the legal costs if you contest the settlement claim in the court. If this does not encourage any individual to buy third party insurance, nothing else will. If protection of material assets and not the loss of human lives a motivation for you to buy insurance, no increase in fines can be a deterrent.

Source: Money Control