Motor insurance, a important branch of insurance, had its beginnings in the United Kingdom in the early part of the last century. The first motor car was introduced into England in 1894.
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The first motor policy was introduced in 1895 to cover third party liabilities. By 1899, accidental damage to the car was added to the policy, thus introducing, the comprehensive policy along the lines of the policy issued today.
In 1903, the Car and General Insurance Corporation Ltd. was established mainly to transact motor insurance, followed by other companies. After World War-I, there was considerable increase in the number of vehicles on the road as also in the number of road accidents. Many injured persons in road accidents were unable to recover damages because not all motorists were insured.
This led to the introduction of compulsory third party insurance through the passing of the Road Traffic Acts 1930 and 1934. The compulsory insurance provisions of these Acts have been consolidated by the Road Traffic Act, 1960.
In India, the Motor Vehicle Act was passed in 1939 introducing the law relating to compulsory third party insurance. The practice of motor insurance in India generally follows that of the U.K. market. The business was governed by a tariff till 2006, and now like the UK market it is non-tariff.
However, the IRDA, the Indian regulatory authority for insurance has directed insurers in India to continue to follow the tariff policy wordings. The Motor Vehicles Act 1988 (Act No. 59 of 1988) has replaced the earlier 1939 Act, and it became effective from 1st July 1989. The third party insurance business is still governed by the India Motor Tariff.
Legally, no motor vehicle is allowed to be driven on the road in India without valid insurance. Hence, it is obligatory to get the vehicle insured. As per the Motor Vehicles Act, 1988 it is mandatory for every owner of a vehicle plying on public roads, to take an insurance policy, to cover the amount, which the owner becomes legally liable to pay as damages to third parties as a result of accidental death, bodily injury or damage to property.
A Certificate of Insurance must be carried in the vehicle as a proof of such insurance. For all vehicles registered with Regional Transport Authorities, third party insurance is compulsory as per Motor Vehicle Act. Third party liability is unlimited however, there is a statutory limit for Third party property damage of Rs. 6000/-.
TYPES OF MOTOR VEHICLES
For purposes of insurance, motor vehicles are classified into 3 broad categories :
1.  Private Car
2.  Motor cycles/scooter (Two wheelers) and three wheelers not exceeding 350 cc Engine capacity.
3.  Commercial vehicle.
Commercial Vehicles divided into 4 groups :
I.  Goods carrying vehicles (own goods)
II. Good carrying vehicles (general carriage)
III. Passenger Carrying vehicles
a)Â Â Motorised Rickshaws
b) Â Taxis
c)Â Bus
IV. Miscellaneous and Special types of Vehicles
