TP cover: necessary, but isn’t enough

Last Monday, we looked at the human side of Motor Third-party (TP) Liability insurance. This compulsory cover is meant to protect peace of mind — and finances — by shielding you from the legal burden of compensating those who suffer losses in an accident involving your vehicle.

But to borrow from the old saying, a TP policy is ‘necessary, but not sufficient.’ It is necessary for every vehicle owner. Yet, the number of vehicles actually insured is far too small for the cover to function as a meaningful social safety net for accident victims and their families.

Earlier this month, the Supreme Court asked the insurance regulator — the Insurance Regulatory and Development Authority of India (IRDAI) — to mull ways to improve motor insurance coverage, especially for TP cover, a statutory requirement under the Motor Vehicles Act, 1988.

Poor coverage

The Court is also expected to look at enforcement strategies and policy reforms, given the troubling fact that a majority of vehicles on Indian roads are uninsured for TP liability. Estimates suggest by late 2023, almost half of all vehicles — about 18 crore — had no active TP cover. Another study puts the uninsured share at 57%.

This is not a recent failure. Non-compliance has been recognised for decades, examined in committee reports, highlighted in the media and dissected in opinion columns — including this one. Numerous solutions have been proposed, and some even tried, yet the problem persists.

Ideas have ranged from adding a small cess on fuel to fund TP payouts, to collecting a lifetime TP premium alongside lifetime road tax. Long-term 10-year policies were introduced, but uptake remained low, partly because these policies were often not accepted by traffic police. In 2018, the Supreme Court mandated multi-year insurance at the time of registration — five years for two-wheelers and three years for private cars. This nudged up the number of insured vehicles for a while. But many owners simply let the policy lapse after the initial block of coverage.

Stark situation

Today, the situation remains stark: if you do not renew your TP cover, you risk personally bearing the cost of third-party property damage, injury or death. Compensation awarded by the Motor Accidents Claims Tribunal (MACT) routinely runs into lakhs and crores.

Even diligent policyholders are indirectly affected. Every year, IRDAI reviews TP premiums. If total TP claims exceed the collected premium, rates are revised upward. And who bears this burden? Those of us who renew our policies on time! In effect, the compliant end up subsidising the non-compliant — hardly a reward for doing the right thing.

All the more reason to nudge that neighbour, friend or relative who ignores TP renewal.

Remind them that neglecting a mandatory policy doesn’t just endanger others — it also costs the rest of us.

(The writer is a business journalist specialising in insurance & corporate history)