1. Abstract
1-1. Back to basics- Cover -Liability and Premium
1-1-1. Whether the basic policy and premium for motor TP insurance provided in the Indian Motor Tariff, cover and commensurate with the basic liabilities prescribed under the Motor Vehicles Act, 1988?
1-1-2. Consequences to follow, in case of discrepancy, and its impact on the Indian non-life insurance industry.
1-1-3. Road map and action plan
1-1-4. Conclusion
2. Setting the agenda
2-1. ‘Titanic’ the ship, built to be unsinkable, sank in its first voyage. Similarly, the general insurance industry, devised, designed and developed to provide financial security, stability and solvency to the trade and commerce of the nation, itself struggling to salvage its solvency, when pitted against the ice-berg formed due to surmounting accumulation of liability in motor third party Insurance business over the years.
2-2. The tough question before us today, is there any way out for the industry? For many, the answer is simple and straight, reintroduce and revive the limited liability regime. Considering the assurance given by the Government, the industry is hopeful that the history will repeat and the liability of the insured will be capped at least by tomorrow, if not today. But considering the existing political, social, economic and legal impediments it would appear to be an impossible task for the Government to implement the same in near future. However, like others in the industry I am equally hopeful that it has to come and it will come.
2-3. But again, to reap the benefit of the transformation which may take place at a future date the industry should continue to float and survive till such time. With our wait and watch policy, the industry may collapse and sink before the rescue team arrives. With this, again we revert to square one, i.e. is there any hope for the industry to keep floating and survive in the existing system and look forward?
2-4. Though we may not able to undo the damage already caused to the industry by external means, but can surely salvage the situation and look forward for a bright future ahead, provided, we identify and plug the existing inherent, inbuilt leakage in pricing motor TP insurance from within.
3. Identification of issues
3-1. Basic liability as prescribed under the Motor Vehicles Act, 1988
Section 146 of the Motor Vehicles Act, 1988 (hereinafter referred to as ‘Act’), mandates for compulsory insurance of all motor vehicles covering the risk and liabilities to the extent provided in Section 147 of the Act.
Requirement prescribed u/s 147 of the Act are divided into 2 parts;
(1) Liability arising out of death and or personal injury to any person
(2) Liability arising out of damage to third party property (hereinafter referred to as ‘TPPD’).
Please note that the term ‘any person’ as appearing in Section 147 specifically excludes the parties to the contract.
While there is a limit of Rs. 6,000/- in case of TPPD, no such upper limit is prescribed for death or personal injury cases under the statute.
3-1-1. Classification of the basic liability for the purpose of the study.
For the sake of convenience and purpose of the study, liability for death and or personal injury to ‘any person’ as prescribed under the statute is broadly classified as (1) user and (2) non-user.
Here ‘non-user’ means and includes all those person(s) who are not using the vehicle in any manner whatsoever when the same met with an accident, whereas ‘user’ means and includes all those person(s) who are using the vehicle in somehow or other manner when the same met with an accident. While all the ‘non-user(s)’ are required to be covered in all types of vehicle, all the ‘users’ of the vehicle are not required to be covered. While some of the ‘specified user(s)’ are covered in ‘all types of vehicle’, some of the ‘specified user(s)’ are covered only on some ‘specified vehicle’.
3-1-2. Classification of the basic liability as prescribed under the Motor Vehicles Act, 1988 in tabular format
Coverage of such ‘non-user’ and ‘specified user’ prescribed u/s 147 of the Act converted in the tabular format given below.
Accordingly, policy issued under the provisions of the Act is required to cover all ‘non-user’, ‘specified users’ such as driver engaged for driving the vehicle and owner of goods or his authorised representatives* (herein after referred to as “OOGOHAR”)
* For the sake of convenience liability in relation to ‘OOGOHAR’ is being dealt with separately.
Whereas, in case of ‘goods carriage’ the same is required to cover ‘workmen carried in the vehicle’ and in case of ‘public service vehicle ‘passengers’ and ‘conductor’ or ‘ticket examiner’, in addition to the above.
3-2. Basic Motor TP Insurance provided under the Indian Motor Tariff:
Basic Motor TP Insurance provided under the Indian Motor Tariff (hereinafter referred to as ‘Tariff’), cover the followings;
(1) death of or bodily injury to any person so far as it is necessary to meet the requirement of the Motor Vehicles Act.
(2) damage to property other than property belonging to the insured or held in trust or in custody or control of the insured up to the limit specified in the schedule.
(Ref Section-6- Liability to third parties-Para-1 India Motor Tariff @ page 107)
3-3 Comparative study and framing of the issues by elimination process From the above it is apparent that the basic policy provided in the ‘Tariff’ covers the basic liability prescribed under the ‘Act’. This takes us to the ultimate level of the study i.e. whether the premium provided under the ‘Tariff’ commensurate with the basic liability covered under the policy?
So far as basic premium relating to ‘TPPD’ is concerned, there is no issue, hence the same is not taken into consideration.
So far as the basic premium relating to death and or personal injury of ‘any person’ is concerned the same have two dimensions;
(1) basic premium for the liability of ‘non-user(s)’ in any type of vehicle
(2) basic premium for the liability of specific user in all types of vehicle and ‘specific user(s)’ in ‘specified vehicles’.
Here too there is no issue so far as basic premium relating ‘non-user(s)’ in any type of vehicle is concerned, hence the same is not taken into consideration.
3-4 Ultimate issue to be dealt with
With this now we are left with the remaining issue that relates to the adequacy of the basic premium to cover the basic liability of
(1) specific user in all types of vehicle and
(2) specific user in specified vehicle.
4. 360 degree analysis and findings on the issues and impediments
4-1. Analysis as to how far the ‘basic premium’ commensurate with the ‘basic liability’ with regard to ‘specific user’ in ‘all types of vehicle’.
4-1-1. Illustration relating to Driver: Now take for example an ‘owner-insured’ engaged a driver to drive a vehicle (any vehicle) insured under a basic ‘liability only policy’ on payment of the ‘basic premium’, without opting for ‘extra benefit’ on payment of ‘additional premium’ covering the liability of the ‘paid driver’, and the driver sustained personal injury or death by an ‘accident arising out of and in the course of his employment’ involving the same vehicle. Whether the insurer is liable?
4-1-2. Relevant Provision in ‘Tariff’
IMT 28 r/w 39 of the ‘Tariff’ provides that legal liability to paid driver (and others) under Workmen’s Compensation Act, 1923 (herein after refereed to as ‘W. C. Act, 1923’) among others can be covered as ‘extra benefits’ at the option of the insured subject to payment of additional premium.
This appears to be inconsistent with the basic motor TP Insurance provided under the Tariff, that covers the liability for (1) death of or bodily injury to any person so far as it is necessary to meet the requirement of the Act. While one proviso of the Tariff extends automatic coverage to all those persons required to be covered by the Act as a part of the basic policy, the other proviso provides for coverage as an ‘extra benefit’ on payment of ‘additional premium’. Both proviso’s are contradictory to each other.
4-1-3. Relevant provision of the Act
In this regard the law is very clear. Section 147 of the ‘Act’ in unequivocal terms prescribes coverage of driver engaged in driving the vehicle.
4-1-4. Analysis and finding
In such a situation, it will be the law of the land, that will have precedent over the ‘Tariff’ In other words, notwithstanding, whether any additional premium covering the risk of ‘paid driver’ was paid or not as per the ‘Tariff’ provision on ‘extra benefits’, the driver engaged in driving the vehicle will be deemed to be covered as per the requirements u/s 147 of the ‘Act’.
4-2. Analysis as to how far the ‘basic premium’ commensurate with the ‘basic liability’ with regard to ‘specific user’ in ‘specified vehicle’.
4-2-1. Illustration-Workmen’s being carried in goods carriage.
Let’s repeat the illustration, relating to ‘driver’ mentioned herein before with slight modification where the driver will be replaced with employed workman and the ‘vehicle’ with ‘goods carriage’ with the same question i.e. whether the insurer is liable?
4-2-2. Relevant Provision in ‘Tariff’
Section-4 – Tariff for commercial vehicles- Regulation-Para-10 (a) r/w IMT 39 of the ‘Tariff’ provides for payment of ‘additional premium’ to cover the legal liability under ‘WC Act 1923’ (among others) to persons employed in connection with the loading and or unloading of the insured goods carrying vehicle (including tractor and all Misc. Vehicle of class D of the commercial vehicle Tariff)
This appears to be not inconsistent with the basic motor TP Insurance provided under the ‘Tariff’, that covers liability for the (1) death of or bodily injury to any person so far as it is necessary to meet the requirement of the Act. While one proviso of the ‘Tariff’ extend automatic coverage to all those persons required to be covered by the ‘Act’ as a part of the basic policy, the other proviso provides for coverage as an ‘extra benefit’ on payment of ‘additional premium
4-2-3. Relevant provision of the Act
Here also, the law is very clear. Section 147 of the Act in unequivocal terms prescribes coverage of workmen, if it is a goods carriage, being carried in the vehicle, to the extent of liability under ‘W. C. Act, 1923’.
4-2-4. Analysis and finding
At the cost of repetition, here also it will be the law of the land that will have precedent over the ‘Tariff’. In other words, notwithstanding, whether any ‘additional premium’ covering such risk was paid or not as per the Tariff, in case of a ‘goods carriage’, workmen carried in the vehicle will be deemed to be covered as required u/s 147 of the Act.
4-3 Employee engaged as a ‘conductor’ or ‘examiner of ticket’ in ‘Public Service Vehicle’.
4-3-1. Illustration- Let’s repeat the illustration once again, relating to ‘driver’ mentioned herein before with modification where the ‘driver’ will be replaced with ‘conductor or ticket examiner’ and ‘vehicle’ with ‘public service vehicle’, with the same question, i.e. whether the insurer is be liable?
4-3-2. Relevant Provision in ‘Tariff’
Section-4 – Tariff for Commercial Vehicles- Regulation – Para 10(b) r/w 28, 39 and 40 IMT of the ‘Tariff’ provides for payment of ‘additional premium’ to cover the legal liability under the ‘W.C.Act,1923’ (among others) to persons engaged as ‘conductor’ in a ‘passenger-carrying vehicle’.
4-3-3- Analysis and finding
In view of the ambiguity between ‘Tariff’, and the mandate of Section 147 of the ‘Act’, notwithstanding, whether any ‘additional premium’ covering such risk was paid, in case of a ‘Public service vehicle’, an employee engaged as a ‘conductor’ of the vehicle or in ‘examining ticket’ on the vehicle will be deemed to be covered as per the requirements of the ‘Act’.
4-4. ‘Passenger’ carried in ‘Public Service Vehicle’.
4-4-1. Illustration: Besides above, another ‘specified user’ is required to be covered in a ‘specified vehicle’ as per the ‘Act’. Here we are talking about the ‘passenger(s)’ carried in ‘Public Service vehicle’.
4-4-2. Relevant Provision in ‘Tariff’
But the approach of the ‘Tariff’ was totally different here, since ‘passenger(s)’ carried in ‘Passenger Carrying Vehicle’ was not covered as ‘extra benefit’ subject to payment of ‘additional payment’ as it provided for ‘driver’, ‘workmen carried in a goods carriage’ and ‘conductor or ticket examiner’ in a ‘passenger carrying vehicle’. Rather the premium for coverage of ‘passenger’ in ‘Passenger Carrying Vehicle’ was inbuilt as a part and parcel of the ‘basic premium’ for the basic liability only policy.
The ‘basic premium’ for ‘passenger carrying vehicle’ consists of two components, while one component takes care of non-users, other component takes care of the ‘passenger(s)’ carried in the vehicle, whose liability required to be covered under the ‘Act’.
4-5. Analysis and ultimate finding about the liability covered against ‘basic premium’ under the ‘Tariff’.
In the light of the above, it is apparent that the basic premium provided in the ‘Tariff’ for the vehicles other than passenger carrying vehicle was meant for and commensurate with the basic liability relating to ‘non-user(s)’ only. This lead to inference that except in the case of ‘Public Service Vehicle’, the insurer is assuming the liability of ‘specific user’ in any vehicle and ‘specific user’ in ‘specified vehicle’, against the ‘basic premium’, which is meant for the coverage of ‘non-user(s)’ only.
5. ‘Owner of Goods or his authorised representatives carried in the vehicle’ (‘OOGOHAR’).
5-1. M. V. Act on ‘OOGOHAR’.
With effect from 14/11/1994, by amending Act 54 of 1994, the legislature extended the scope of the policy by way of inclusion of “owner of goods or his authorised representative carried in the vehicle”
5-2. Tariff on ‘OOGOHAR’
It appears that the makers of the tariff assumed that the same extension was intended and extended only in relation to the ‘goods carriage’ having provision of seating in the vehicle. Accordingly, provision was made for coverage of such persons as ‘extra benefit’ subject to payment of additional premium as envisage in para-4 of the ‘extra benefits’ in premium for liability only cover in Section 4-C r/w 37-A IMT of the ‘Tariff’.
5-3. Analysis of the provision on ‘OOGOHAR’ in the Tariff
The rating structure covering the liability of the ‘OOGOHAR’ as exist in the ‘Tariff’ appears to be suffering from two counts;
(1) Placing the same under the head ‘extra benefit’ like that of ‘driver’, while the same required to be covered compulsorily as per the ‘Act’. As a result, even without payment of separate premium for such person as per the ‘Tariff’ they will be deemed to be covered in the same line like that of an employee engaged for driving the vehicle.
(2) Restriction of its coverage to the ‘goods carriage’ while the Act does not restrict its application to any specific vehicle by using the term ‘vehicle’. Had the Act intended to limit the same to the ‘goods carriage’ only, then the term ‘in the vehicle’ should have been replaced with the term ‘in the goods carriage’ as it appearing in case of workmen, that restrict their coverage while carried in the goods carriage only.
Therefore ‘OOGOHAR’ appears to be covered and for that matter required to be covered like that of a ‘driver’ engaged in driving the vehicle, in all type of vehicle having provision for carriage of persons as per the Statute.
5-4. Supreme Court of India on ‘OOGOHAR’
This argument further substantiated by the ratio laid down by the Apex Court in the case of United India vs. K. K. Suresh to the effect that ‘”xxx the language of the amended provision does not show that the owner or the representative must accompany the goods or his representative who hires the vehicle travels in the hired vehicle from the place of hiring to the place where the goods are to be loaded into the vehicle and then proceeds to travel along with the goods.” It is further held that ‘the amended provision makes it explicitly clear that the word ‘carried’ qualifies the owner of goods or his representative and not the goods carried.’ This means, the ‘OOGOHAR’ need not travel in the same vehicle in which the goods are carried, rather he can travel in any vehicle and will be covered so long as he was carried in his capacity as ‘OOGOHAR’.
5-5. Implication of the Judgment of Supreme Court of India
In view of the above, coverage of ‘OOGOHAR’ cannot be limited to goods carriage alone, rather the same can be extended to all types of vehicle having provision for carriage of person
5-6. Illustration
Take for example ‘OOGOHAR’ due to lack of space or for any other reason unable to travel in the same vehicle in which the goods were carried, and he is offered to be carried by the transporter in his private car or motorized two-wheeler insured under a liability only policy. Point to be noted here that while the ‘OOGOHAR’ doesn’t have to pay anything for being carried in the said vehicle, at the same time he cannot be treated as a person traveling gratuitously. In such a case, if the ‘OOGOHAR’ sustain personal injury or death whilst traveling in the said vehicle, whether the insurer will be liable?
5-7. Argument and counter argument
Many of us, may argue that the insurer is not liable since pillion rider in a two-wheeler and or occupants carried in a private car is/are not required to be covered u/s 147 of the Act and as such not covered under a basic ‘liability only policy’. The above argument do not appear to be applicable here for the reason that the victim here was not a mere pillion rider / or an occupant simplicitor, but a ‘OOGOHAR’, whose risk required to be covered u/s 147 of the Act, irrespective the type of vehicle in which he was being carried so long he was traveling in his capacity as ‘OOGOHAR’, just like that of driver engaged in driving the vehicle.
5-8. Inference
In view of the above, it appears to be appropriate, for the insurer to collect separate premium covering the risk of OOGOHAR in all type of vehicle having provision for carriage of persons as a part and parcel of the basic premium like that of a driver, except in the case of public service vehicle, since passenger carried in the vehicle was already covered as a part of the basic premium paid, which takes care of the ‘OOGOHAR’ also.
6. Consequences to follow, in case of discrepancy and its impact on the Indian non-life insurance industry
6-1. Inference and finding drawn against each illustration on comparison with the ‘basic policy’ and ‘premium’ provided by ‘Tariff’ in one hand and the ‘basic liability’ prescribed by the Act on the other at para 4and 5 of this Article, is self explanatory and sufficient enough to shock one’s conscience about the existing anomaly and its impact on the Indian non-life insurance industry.
6-2. In terms of money the loss is estimated based on the figures by IRDA for the year 2010-11
This is a very conservative estimate since the above figure does not include the figure of the India’s Largest Insurer, The New India Assc. Co. having around 10 to 15% of market shares in Motor Insurance business.
The above figure worked out considering the carrying capacity of goods carriage as 3 person whereas ordinarily 6 persons allowed in such vehicle.
The above figure also does not include the premium, to be charged for coverage of OOGOHAR.
Thus the apparent loss to the Industry in terms of money could be devastating and astronomical.
7. Road map and action plan
7-1 Road map : The industry should take a clue from the premium rating prescribed for passenger carrying vehicle which provides for separate component for users and non-users while fixing the basic premium for all types of the vehicle that commensurate with the basic liability required to be covered under the statute.
7-2. Action plan
The basic premium of the vehicle should be fixed based on the liability required to be covered under the Act. For that purpose, as classified earlier, the basic liability and corresponding premium of a vehicle should be divided into 2 categories (1) a fixed amount for the non-user in the line as it exist today (2) an amount for specified user(s). Specified user(s) should be further sub-divided into 2 category (a) specified users in all vehicles (b) other specified users required to be covered in specified vehicles.
7-3. Illustration
7-3-1. All vehicle
Take for example, an employee engaged in driving the vehicle was required to be covered to the extent of liability under W. C. Act, 1923 in all types of vehicle. Therefore the basic minimum premium for all type of the vehicle should be for ‘non-user’ + ‘specific user’ i.e. driver.
7-3-2. Goods carriage
In case of goods carriage the corresponding liability extend to cover workmen being carried in the vehicle in addition to the above. Therefore the premium should be for ‘non-user’ + ‘specific user’ i.e. driver + specific user in specific vehicle i.e. workmen carried in the vehicle
7-3-3. Public Service Vehicle
Similarly, in case of Public Service vehicle the corresponding liability extend to cover the liability of the conductor or ticket examiner and passengers in addition to coverage of driver and all ‘non-user’. Therefore the basic premium should be for ‘non-user’ + ‘specific user’ i.e. driver + specific user in specific vehicle i.e. conductor or ticket examiner + passenger.
The above illustration was without inclusion of premium for OOGOHAR
7-4. Methodology for fixation of basic premium
(1) “a” represent the value of premium for the liability towards non-users as it exist today.
(2) ‘b’ represent the value of the premium for liability towards driver engaged to drive the vehicle. In case of a vehicle where statute require engagement of minimum 2 driver* the value should be fixed by way of multiplier of 2. (* Ref Rule 90 of Central Motor Vehicle Rules, 1989 which provides minimum 2 drivers in case of a vehicle issued with National Permit)
(3) ‘c’ represent the total value of premium for workmen carried in the vehicle by way of multiplier to the extent of the carrying capacity of the vehicle.
(4) ‘d’ represent the value of the premium for the conductor or ticket examiner in a public service vehicle.
(5) ‘e’ represent the total value of premium for passenger carried in the public service vehicle by way of multiplier to the extent of the carrying capacity of the vehicle.
(6) ‘f ‘ represent the total value of the premium to be arrived by way of multiplier based on the carrying capacity of the vehicle.
8. Ultimate basic premium
8-1. Motorized two-wheeler (Private use)
Coverage- non-user + specified user such as driver + specified user such as ‘OOGOHAR’
Combined premium for a + b + f = basic premium
8-2. Private Car
Coverage- non-user + specified user such as driver + specified user such as ‘OOGOHAR’
Combined premium for a + b + f = basic premium
8-3. Commercial Vehicle
8-3-1 Goods carriage (Both Public and private carrier)
Coverage- non-user + specified user, such as driver + specified user such as ‘OOGOHAR’ + specified user in specified vehicle, such as workmen carried in the vehicle
Combined premium for a + b + f + c = basic premium
8-3-2-1. Passenger Carrying vehicle (Public carrier)
Coverage – non-user + specified user, such as driver + specified user such as ‘conductor or ticket examiner + specified user in specified vehicle, such as passenger carried in the vehicle
Combined premium for a + b + d + e = basic premium
8-3-2-2 Passenger carrying vehicle (Private carrier)
Coverage – non-user + specified user, such as driver + specified user in specified vehicle, such as passenger carried in the vehicle
Combined premium for a + b + e = basic premium
8-4. Special and Misc. type of vehicle
Coverage non-user + specified user such as driver + *specified user in specified vehicle, such as workmen carried in the vehicle + *specified user such as ‘OOGOHAR’
Thus the premium for a + b + c* + f *= basic premium
* Depending on the type of the vehicle
8-5. Extra coverage subject to payment of extra premium:
8-5-1. Practice of automatic coverage of pillion rider / occupants carried in two-wheeler / private car in a ‘package policy’ should be withdrawn immediately as the same was extended without any corresponding premium. Also the same is not required to be covered under the law. Instead, the same should be made available as ‘extra benefit’ on payment of ‘additional premium’ to the extent of carrying capacity of the vehicle.
8-5-2. Higher ‘TPPD’ coverage as it exists, should be made available as ‘extra benefit’ subject to payment of ‘additional premium’.
9- Conclusion
Having set the things into motion, I refrain from drawing any conclusion, but leave it open to the wisdom of my esteemed reader and the stalwarts in industry to decide. However, if anyone has any iota of doubt about the legality, rationality and effectiveness of the action plan to salvage the loss incurring Motor TP Insurance, I’ m open for any debate, deliberation and discussion.
10– Last word
Please note that insurance is a subject matter of solicitation.
Author-M.K.Das.
