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Should vehicle drivers or owners pay for third-party compensation in accidents

Insurers want vehicle owners or drivers to pay stiffer fines or buy additional third-party covers. Not all agree.

Can making them pay a part of the compensation be a solution? ET Wealth speaks to experts.

Jehangir Gai, Consumer Activist, says NO "The law makes it mandatory to have third party insurance coverage for all vehicles. This does not burden the insurer as the compensation is funded by the premium collected."

Drivers, even in metros, earn about Rs 15,000 a month. The working condition of truck drivers, who mostly belong to the lower strata of society and hail from remote villages, is worse. Consequently, they do not have much savings. So, it would be impractical to expect a professional driver to bear a part of the compensation payable to an accident victim. Judicial delays also make it difficult to trace a driver and execute the order several years down the line.

Similar difficulties could arise in affixing liability on the owner of a vehicle. Law is uniformly applicable—it cannot discriminate between affluent and poor vehicle owners. There are several people without much money who buy a vehicle on hire purchase to ply it for gainful employment.

Such persons will not be able to afford payment of any compensation. Moreover, an owner may sell off his vehicle, change residence, migrate, or even be dead by the time the case gets decided. This would make it difficult for the decree holder to execute the award for compensation. Keeping all these factors in mind, the law makes it mandatory to have third party insurance coverage for all vehicles. This methodology does not even put a burden on the insurer, as the compensation payable is funded through the premium which is collected. Another advantage is that insurance companies have a presence throughout the country. So recovery of compensation from the insurer is much simpler.

Hence, payment of the entire compensation by the insurer is in the best interests of of all concerned.

Shailaja Lall Partner, Shardul Amarchand Mangaldas says NO

"For victims, there is no recourse to compensation if the owner or the driver can’t pay it."

The idea of the insured driver/owner sharing a portion of the third-party compensation is flawed. For the insured driver or owner, this defeats the purpose of obtaining third party cover, as the insured will still have to pay out of his pocket and will remain exposed to such liability.

For the victim, there is no recourse to compensation if the owner or the driver has no means to pay it, and in several cases, this will lead to protracted litigation. As per existing laws, interim compensation for death or permanent disablement of a victim works on a no-fault principle. The efficacy of this principle will be impacted if compensation is to be contributed by the owner or driver. The purpose of the no-fault principle is to bring faster relief to victims.

If the insured drivers and owners are made to share a portion of the compensation, then it will open up a lengthy process of investigation to determine fault and the relevance of third party insurance cover can be questioned. The core issue to be addressed in third party motor insurance segment is enforcement of mandatory third party insurance cover rule.

Rakesh Jain Executive Director and CEO, Reliance General Insurance says Yes but... "Owners/drivers can contribute by buying an optional add-on cover."

Getting the insured to directly share the compensation payout is not practical. Claims are filed by the accident victims after a lag. The hearings at the tribunal could also go on for a few years. So, the claimant could receive the compensation only after several years. At that stage, it is not always easy to trace the owner or driver. Thus, it is the poor victim who will have to suffer.

In some parts of the world, there is a minimum mandatory insurance specified under third-party covers. For example, in the US, it is $1,00,000 in most states. It is optional for the driver to buy the additional cover. If a driver chooses to buy protection till $5,00,000, another $4,00,000-cover will be required to be bought.

At the moment, in India, it is an open-ended model for insurers and the whole liability is passed to the insurers. The claims can come in after many years and there is no cap on the likely compensation. My view is that the owners/drivers should participate in compensation sharing by buying an optional add-on cover that insures them against claims exceeding the minimum amount—say Rs 15 lakh—prescribed by law.

Kamesh Goyal Chairman, Digit General Insurance Co says Yes but... "The driver of a vehicle should be fined Rs 10,000 for injury cases and Rs 25,000 for deaths and the vehicle owner should be fined double this. This, in a way would be their contribution."

India has the highest number of road accidents in the world compared to the number of vehicles. The reasons are many. Overloading of vehicles, poorly maintained vehicles, drivers who are untrained or driving on bogus licences, as well as over worked drivers, etc.

Another contributing factor is the way our judicial system is structured. Cases for compensation go on forever and the courts over a period of time have adopted a philosophy that insurance companies should pay more and more compensation while letting go the vehicle owner and driver.This, coupled with the fact that motor third party premium in India has no concept of no claim bonus, has meant vehicle owners and drivers have no incentive or disincentive to reduce road accidents.

Since there is no time limit to file a MACT claim, the concept of NCB will not work as intimations of accident come after 1-2 years also. The only way this will work is if the driver of the vehicle is fined a minimum of Rs 10,000 for injury cases and Rs 25,000 for deaths and the vehicle owner is fined double this amount. This, in a way would be their contribution. The cases can take years, so getting them to pay will be difficult. So, the amount should be deposited in the court as soon as a charge sheet is filed.

If the driver is not traceable, then the owner becomes liable for the driver’s fine as well. Unless people whose vehicles are involved in road accidents are penalised, society will continue to pay a heavy social and economic price for the road accidents.

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