The Road To Safety: Understanding The Impact Of Auto Insurance Compliance

The auto insurance sector today accounts for 34.1 per cent of non-life premiums collected by insurance companies

By Sandeep Agrawal

The automobile sector has been a historical indicator of the health of the Indian economy over the past decades. The surge in both the two-wheeler and four-wheeler segments has coincided with an expanding middle class.  Consequently, the world’s third-largest automobile market has also seen a parallel growth in the auto-insurance sector. The auto insurance sector today accounts for 34.1 per cent of non-life premiums collected by insurance companies.

The passenger car market is expected to reach $54 billion by 2027, with EVs reaching a market share of $7 billion by 2025. Vehicle sales are starting to approach pre-covid numbers, with passenger vehicle sales growing by 26.7 per cent in FY22-23 and two-wheeler sales growing by 17 per cent.

As per the Ministry of Road Transport and Highways (MoRTH), the total number of registered vehicles in the country stood at 326 million in 2020, up from 48.9 million in 2000 and 21 million in 1991. This has translated into the number of registered vehicles per 1000 people going from 53 in 2001 to 246 in 2020.

The steady growth in the economy has meant higher disposable income, resulting in an increasing demand for personal vehicles. Personal vehicles bring the comfort and ease of personal mobility, while commercial vehicles enable the movement of goods and passengers. The exponential growth in the number of automobiles on roads is not just a strain on the physical infrastructure (roads, bridges, fuel stations, etc.) but also poses challenges for the regulatory framework. The industry is regulated by the Motor Vehicles Act, 1988 (MV Act), which regulates all aspects of road transport vehicles.

Section 146 of the MV Act mandates insurance against third-party risk. For commercial vehicles that carry dangerous or hazardous goods, the transporter is required to carry another insurance policy under the Public Liability Insurance Act, 1991. The auto insurance framework provides for two types of policies: third-party insurance and comprehensive insurance.

Third-party insurance

Third-party cover is essential for driving on roads as it covers damages and legal liability caused by damage to the property or person of a third party by the insured. It covers the cost of repairs, medical costs, and any liabilities that may arise due to accidental death.

The regulations require the sum to be high enough to ensure that the car owner does not need to pay out-of-pocket in the event of an accident. Driving without third-party insurance can cost the vehicle owner anywhere from Rs 2,000 to Rs 4,000 in fines and even imprisonment of up to 3 months, depending upon whether it's the first offense or a subsequent one.

Comprehensive insurance

Comprehensive insurance covers damages to the vehicle under certain circumstances or due to unforeseen events. These include non-collisions damage such as fire damage, damage from falling objects, flood, theft, vandalism, and any other damage to the vehicle. It gives the buyer the option for additional items to enhance the policy coverage.

Auto insurance ensures that the vehicle owner is not left financially vulnerable in the event of an unforeseen incident leading to an accident. It keeps the owner in a safe spot regardless of where the liability and responsibility of the accident lie. While the country is in a sustained period of economic growth, the average citizen is still wary of medical costs. Unforeseen accidents and incidents can lead to expenses that have financially drained many individuals and families.

The insurance market in India is at a nascent stage, with a life insurance penetration of 3 per cent and a non-life insurance penetration of less than 1 per cent. Insurance schemes are a financial tool that ensures a person’s financial well-being. With more and more people buying and owning vehicles, there are increasing incidents of road accidents. MoRTH data reveals that just in 2022, 461,312 road accidents claimed 168,491 lives, with injuries to 443,366 people. There is a double-digit percentage growth in these numbers when compared to 2021.

There is little doubt that insurance penetration in automobile owners is an area of concern. By not availing auto insurance, vehicle owners significantly increase the risk of fines and out-of-pocket health and compensatory expenses in the event of an accident. In a country that believes more in the “Lemon-Chili” protection, there has to be a shift in perception around road safety and vehicle insurance. The effects of non-insurance are not limited to fines and can severely affect your financial well-being on an unfortunate day.

The writer is the director and Cco-founder at Teamlease Regtech.

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