<p>In terms of official statistics, India records the highest number of road traffic deaths across the world – a little over 10% and that too when it has less than 2% of the global vehicle fleet. The severity of the problem can be gauged from the fact that by the time one finishes reading this article, someone in India would have died due to road traffic crash because, on an average, the country loses one person every three and a half minutes. <br /><br />For long, we have been a mute spectator to this carnage and wrongly thinking that this can happen to others but not to us, the result is that the country lost 1.5 lakh people last year due to road accidents.<br /><br />The silver lining is the much-awaited amendment to the Motor Vehicles Act. The bill which was referred to a Parliamentary Standing Committee after it was approved by the Cabinet had many provisions around improving road safety, like creation of the National Road Safety Board, safety in road design, engineering and construction, higher penalties, vehicle safety etc. But it was the provision around insurance which caught a lot of attention in the media, apart from higher penalties.<br /><br />In technical terms, a third party insurance is the liability which is purchased from an insurance company by a motor vehicle owner so as to protect himself against any claim that may arise from a third person due to death, injury or property damage on account of a road traffic crash.<br /><br />Under the existing Motor Vehicles Act of 1988, it is compulsory for every motor vehicle to have a third party insurance and the liability for the third party insurer is unlimited. The Motor Vehicles (Amendment) Bill 2016 proposed to limit the liability of the third party insurer to Rs 10 lakh in case of any death arising out of road traffic crash and Rs 5 lakh in case of serious injury. The bill, however, proposed that the complainant can go to the Motor Vehicles Claims Tribunal or courts if he/she is not satisfied with the compensation and the tribunal or courts can offer a higher compensation, if deemed fit. But the bill does not clarify as to who will pay the balance amount in case the amount is higher than the liability of the issuance company.<br /><br />The rationale behind putting a cap on liability is the fact that under the current structure, the complainant must go to the Motor Vehicles Claims Tribunal for seeking compensation and it could easily take up to five years for the tribunal to come up with a compensation figure. In addition, the insurance companies were constantly arguing that unlimited liability is putting extreme pressure on their resources and a cap would not only help them streamline the product offer but will also cut down loses that arise due to compensation payment. It was also suggested that a cap on liability would improve the processing time for compensation claims. <br /><br />Bigger picture<br />Many countries around the world have some kind of limit on third party liability. For example, in Oklahoma in the US, the driver must have a minimum liability of $25,000/$50,000/$25,000, which means the insurance company would pay $25,000 for one person’s medial bill but will not exceed $50,000 for other people injured, in addition it will not pay more than $25,000 for property damage.<br /><br />In Brazil, the limit is $8,000 in case of death and a similar amount but in proportion to the injury and reimbursement of medical and hospital expenses up to $1,600. South Africa does not have a full-fledged third party compensation scheme but has a variant in the form of Road Accident Fund. The limitations of this fund are that it only caters to injury or death and provides low compensation.<br /><br />The standing committee that reviewed the bill noted that it was not clear that in case the tribunal or the courts award compensation which is higher than the capped limit of Rs 5 lakh or Rs 10 lakh, who will pay the balance amount? Therefore, it may imply that the owner of the vehicle may be held liable to pay the remaining amount to the third party. This may not be feasible in a country like India where a huge section of the people have low paying capacity. <br /><br />In addition, the owner’s paying capacity may impact the victim in recovering full damages as the accused may not be in a financial position to pay for the balance compensation. The standing committee therefore, in its recommendation, suggested removing the cap on insurance liability. <br /><br />The recommendation has been accepted by the Ministry of Road Transport & Highways and the matter would be discussed in the Rajya Sabha when the bill will be tabled in the Monsoon Session (the Lok Sabha has already passed the bill). Once the cap is removed, whatever compensation is awarded by the tribunal, all of it shall be borne by the insurance companies and nothing will go to the owner. Hope the Upper House will take this as a priority because enough lives have been lost and the country cannot afford to lose anymore. <br /><br />(<em>The writer is director, Integrated Transport, WRI India</em>)<br /><br /></p>
<p>In terms of official statistics, India records the highest number of road traffic deaths across the world – a little over 10% and that too when it has less than 2% of the global vehicle fleet. The severity of the problem can be gauged from the fact that by the time one finishes reading this article, someone in India would have died due to road traffic crash because, on an average, the country loses one person every three and a half minutes. <br /><br />For long, we have been a mute spectator to this carnage and wrongly thinking that this can happen to others but not to us, the result is that the country lost 1.5 lakh people last year due to road accidents.<br /><br />The silver lining is the much-awaited amendment to the Motor Vehicles Act. The bill which was referred to a Parliamentary Standing Committee after it was approved by the Cabinet had many provisions around improving road safety, like creation of the National Road Safety Board, safety in road design, engineering and construction, higher penalties, vehicle safety etc. But it was the provision around insurance which caught a lot of attention in the media, apart from higher penalties.<br /><br />In technical terms, a third party insurance is the liability which is purchased from an insurance company by a motor vehicle owner so as to protect himself against any claim that may arise from a third person due to death, injury or property damage on account of a road traffic crash.<br /><br />Under the existing Motor Vehicles Act of 1988, it is compulsory for every motor vehicle to have a third party insurance and the liability for the third party insurer is unlimited. The Motor Vehicles (Amendment) Bill 2016 proposed to limit the liability of the third party insurer to Rs 10 lakh in case of any death arising out of road traffic crash and Rs 5 lakh in case of serious injury. The bill, however, proposed that the complainant can go to the Motor Vehicles Claims Tribunal or courts if he/she is not satisfied with the compensation and the tribunal or courts can offer a higher compensation, if deemed fit. But the bill does not clarify as to who will pay the balance amount in case the amount is higher than the liability of the issuance company.<br /><br />The rationale behind putting a cap on liability is the fact that under the current structure, the complainant must go to the Motor Vehicles Claims Tribunal for seeking compensation and it could easily take up to five years for the tribunal to come up with a compensation figure. In addition, the insurance companies were constantly arguing that unlimited liability is putting extreme pressure on their resources and a cap would not only help them streamline the product offer but will also cut down loses that arise due to compensation payment. It was also suggested that a cap on liability would improve the processing time for compensation claims. <br /><br />Bigger picture<br />Many countries around the world have some kind of limit on third party liability. For example, in Oklahoma in the US, the driver must have a minimum liability of $25,000/$50,000/$25,000, which means the insurance company would pay $25,000 for one person’s medial bill but will not exceed $50,000 for other people injured, in addition it will not pay more than $25,000 for property damage.<br /><br />In Brazil, the limit is $8,000 in case of death and a similar amount but in proportion to the injury and reimbursement of medical and hospital expenses up to $1,600. South Africa does not have a full-fledged third party compensation scheme but has a variant in the form of Road Accident Fund. The limitations of this fund are that it only caters to injury or death and provides low compensation.<br /><br />The standing committee that reviewed the bill noted that it was not clear that in case the tribunal or the courts award compensation which is higher than the capped limit of Rs 5 lakh or Rs 10 lakh, who will pay the balance amount? Therefore, it may imply that the owner of the vehicle may be held liable to pay the remaining amount to the third party. This may not be feasible in a country like India where a huge section of the people have low paying capacity. <br /><br />In addition, the owner’s paying capacity may impact the victim in recovering full damages as the accused may not be in a financial position to pay for the balance compensation. The standing committee therefore, in its recommendation, suggested removing the cap on insurance liability. <br /><br />The recommendation has been accepted by the Ministry of Road Transport & Highways and the matter would be discussed in the Rajya Sabha when the bill will be tabled in the Monsoon Session (the Lok Sabha has already passed the bill). Once the cap is removed, whatever compensation is awarded by the tribunal, all of it shall be borne by the insurance companies and nothing will go to the owner. Hope the Upper House will take this as a priority because enough lives have been lost and the country cannot afford to lose anymore. <br /><br />(<em>The writer is director, Integrated Transport, WRI India</em>)<br /><br /></p>
