Since revision in MV Act in the year 1988, incorporating of certain amendments with regard to limit of liability, time limit for filing claim petition, selected defense made available to insurers, widening of jurisdiction clause etc. are all together leading to high Incurred claim ratio in this segment and thus putting pressure on insurer’s financial performance in this global environment, particularly when self sustainability of each segment becomes of paramount importance and also a talk of the day.
With a perspective of victims of road accident and their dependents, aspects like quick settlement of compensation cases, easy and corruption free process of claiming compensation and its disbursement are, at the same time, of equal importance. Object of this paper is to put forth a road map of such process which will also help in minimizing burden of legislature besides of meeting above objectives and thus paving way for clearance of large number of pending litigations in various courts of country to some extent. As on date approx. 16 lakhs MACT cases are awaiting judgments from various courts.
Prior to liberalization, PSU general insurers were catering the need of third party insurance requirement and later on private one also came in fray but these private players were very much reluctant for insurance of commercial vehicle in particular at initial stage due to high TP claim ratio under this segment.
Having notice the same, concept of TP pool came in existence during 2007-08 where provision was made to pool TP premium of commercial vehicle segment and every insurer including of private have to share the loss in proportion to their market share and thus ensuring fair distribution of risk amongst all insurers. But somehow concept could not find all around favor and move started either for its abolition or modification and finally from first April,2012 going to be withdrawn and likely to remain in force in respect of declined risk, predominantly because of high ICR.
Trend of losses over the years in TP segment are continues to remain adverse and recently IRDA came out with a draft exposure report strongly suggesting for increase in TP premium. Proposed increase is nominal for private cars and two wheelers but substantial for commercial and other loss prone vehicles. This study is based on analysis of class wise vehicle premium and claim data of past years. Nonetheless question remains, whether this proposed increase would be sufficient enough to mitigate the losses of industry.
Study further provides annual review procedure to fix up the premium logically based on claim experience as observed under various types of vehicles during the previous year. Every time increase in premium may not be the ultimate solution for curbing the menace of high ICR as it will lead in to non compliance of statutory obligation of keeping insurance always in force.
This all necessitate for an effective mechanism to deal with all issues confronting insurers/transport owners/government/accident victims.
Rate of Accidents
The latest world-wide statistics released by International Road Federation (IRF) reveal that 1, 19,860 people are killed in road accidents every year in India. This is the highest in the world, even more than China, which had always registered the maximum number of road fatalities till 2005. However, after a conscious effort China has been able to reduce road deaths and injury accidents.
India, on the other hand, has been registering the most number of accidents in the world. IRF statistics reveal that China finishes second in the dubious list registering 73,484 deaths. Though United States has the most number of injury accidents, it is way behind in fatalities with 37,261 persons killed every year.
What is worse is that while most countries show a downward trend in fatalities, India’s killer roads and highways are becoming with road fatalities showing a steady 2-4% increase every year. Fatalities have shown a whopping 42% increase in just seven years since 2003.
Even though India has registered the highest number of road fatalities, the Government’s expenditure on road safety schemes has not been encouraging. The nodal ministry – Ministry of Road Transport and Highways – has been unable to spend the funds allocated for road safety for over five years. In 2009-10 when fatalities have climbed up to 1.19 lakh, the Ministry had the worst expenditure in five years – less than 35% of the allocated funds.
There are innumerable reasons for these high number of road accidents like high density of automobiles on roads, ill developed road infrastructure, poor enforcement of traffic rules, lack of road safety education, human habitat along the side of main roads etc. and therefore putting the entire blame of accident on owner of vehicle or his representative and driver and thus making insurance companies vicariously liable for payment of compensation, may not be fair.
Under this back drop it is essential to have some common corpus to meet out the liability arising out of road accidents and to the extent commensurate with average living standard and per capita income of the nation.
Funding of the project
Keeping in view the social aspect of whole philosophy of compensation to the victims of road accident or to their legal hirers there is a need to widen the scope of solatium fund. One rupee or lesser per unit cess on every type of auto fuel can be a good source for making this proposition viable.
Implementation of cess will ensure the contribution of every vehicle depending on degree of its use and thus would deal with the menace of not insuring the vehicle.
Further collection of cess would be less cumbersome and incur almost negligible cost. Accumulation to the fund with this contribution may be sufficiently kept equal to TP claim paid amount in past years by different insurers in India (3935 crore).
More precisely amount comes to Rs.4380 crores, being all India TP incurred claim amount during 2009-10 as per IRDA estimates. Funds so generated can be used for meeting out payment of compensation on account of social responsibility as defined in following paragraphs.
Fig. shows year wise TP premium, claims paid and incurred claim amount.
Administration of fund-Social liability and its operation
Responsibility of fund management can be laid to the nodal ministry of central government who will also be responsible for investment of corpus in Govt. securities and other secured ventures. Investment income so generated will also dilute the burden of vehicle owners.
Modus operandi for compensation payment based on structured formula in case of death under different age groups without any discrimination for financial status and gender may be adopted with a maximum limit of Rs. Fifteen lakhs. This will establish social equality for all citizens. As regards to injury cases with a further classification in simple injury/grievous injury and cases involving disability, separate formula with fixed amount of compensation can be specified in the schedule so prescribed.
Area City magistrates on the basis of police report, police enquiry, accident victim’s whereabouts and related medico legal papers submitted before him by the police may dispose off the case in view of structured formula/ schedule as applicable without going in any detail with regard to fault or compliance of any statute or vehicle papers. Only happening of vehicular accident and involvement of victim in the reported accident shall be the prime deciding factors for disbursement of compensation.
Adoption of the procedure will eliminate scourge of corruption on one hand and secondly process of disbursement of compensation could also be expedited with a less cumbersome procedure without involvement of advocate. Fake claims because of necessity of lodging FIR, police investigations could also be ruled out.
There may not be any scope for appeals before higher courts and thus reducing the burden of courts and sparing their time to look after the cases pending otherwise before them in large numbers and thus fulfilling the need of speedy justice.
Suitable endorsement of driving license of a person involved in accident and intimating thereof to concerned RTO will further inculcate traffic discipline among the citizens.
Insurer’s Role in changed environment
Third party insurance policy with unlimited liability currently in vogue will be replaced by the policies covering extra liability over and above the social liability thus making it acceptable amongst the persons opposing idea of reintroducing limited liability.
These policies issued by insurers separately, not in conjunction with own damage section, will be available to public at much lesser cost because of initial liability being met through widened solatium fund and possible downsizing of insurer’s financial burden due to it. Pricing of product in true sense would be driven as per prevailing market realities.
Court case filed for extra liability would be entirely a prerogative of accident victim or his legal heir and require to be defended by all parties concerned in civil court of law without any restriction as per provisions of law of tort and common law.
This case would be linked with the previous case decided for social liability purpose and the compensation provided on merits shall be over and above the amount paid earlier as a part of social liability but without any consideration of recovery in case amount of compensation found to be lower than the social liability.
In all probability by default lesser number of people will prefer the claims before court for increased liability in view of earlier payment coming in way with much ease and otherwise also Indians by nature do not remain in favor of litigation, especially when the object has already been taken care of through some other mechanism.
Entire mechanism is ought to remain a win- win situation for all concerned and expeditious delivery of justice could also be ensured.
By : Dr.M.C.Agrawal, Chief Regional Manager, National Insurance Co.Ltd., Regional office, Jaipur, Published in The Insurance Times, May, 2012