Daijiworld Media Network - New Delhi
New Delhi, Nov 5: The Insurance Regulatory and Development Authority of India (IRDAI) has directed general insurance companies to restructure motor insurance policies into four clearly defined components by December 15, in compliance with a Supreme Court order aimed at making insurance coverage easier for vehicle owners to understand.
The new framework will apply to private cars and two-wheelers and separate compulsory third-party liability insurance from additional covers that customers can choose to purchase. The move is intended to provide greater clarity on the coverage offered and the premium charged for each component.
The IRDAI circular operationalises the Supreme Court's directions in the case of National Insurance Company Ltd vs Thungala Dhana Laxmi.
Under the revised framework, motor insurance will be divided into four components. The first will be third-party liability cover, which remains compulsory under the Motor Vehicles Act. It covers the vehicle owner's legal liability for injury, death or property damage caused to another person in an accident.
The second component will cover legal liability towards occupants, including passengers in cars, pillion riders and employees travelling in the insured vehicle. This cover will be optional and available at an additional premium. However, the number of occupants covered cannot exceed the vehicle's registered seating capacity.
The third component will be personal accident cover. Personal accident protection for the owner-insured will remain mandatory, while customers can opt for additional protection for other occupants, pillion riders and drivers other than the owner-driver.
The fourth component will be own-damage cover, which protects the insured vehicle against damage or loss. This will remain optional, allowing vehicle owners to decide whether they want protection for their own vehicle in addition to compulsory third-party insurance.
IRDAI has also directed insurers to adopt standardised policy wordings to ensure uniformity in coverage across insurance companies.
Insurance companies will have to obtain a duly completed customer option form for every private car and two-wheeler policy issued. The form will record the covers selected by the customer and will become part of the insurance policy.
Insurers must also provide a Customer Information Sheet (CIS) at the time of purchase, clearly explaining the coverage available under each component. The document must separately disclose the coverage and premium charged for every section.
These requirements will apply to policies sold through both online and offline channels.
The move is expected to reduce disputes arising from confusion over whether particular passengers, drivers or vehicle-related risks are covered under an insurance policy. It will also ensure that customers have a written record of the additional covers they have opted for or declined.
The new framework also offers flexibility to existing third-party policyholders. Those holding third-party motor insurance will be allowed to add legal liability cover for occupants or pillion riders during the policy period by paying an additional premium, without cancelling their existing policies.
However, the additional protection must be purchased from the insurer that issued the original third-party policy. The coverage will come into effect from the date and time specified in the insurer's endorsement.
While prescribing uniform policy wordings and a common structure, IRDAI has allowed insurers to retain flexibility in pricing own-damage policies in accordance with market conditions. Insurers can also introduce additional coverage options and determine their premiums, subject to regulatory requirements.
The regulator has further directed insurance companies to integrate the new four-component motor insurance framework with Bima Sugam, the proposed digital insurance marketplace, by December 15.