IRDAI’s new four-section motor insurance framework will make mandatory and optional covers easier to identify, require insurers to disclose premiums separately and give customers greater clarity when buying or renewing policies.
Buying or renewing car and two-wheeler insurance in India is set to become more transparent from December 15. The Insurance Regulatory and Development Authority of India (IRDAI) has introduced a standardised four-section motor insurance framework aimed at helping vehicle owners understand the protection they are purchasing and the premium charged for each component.
The changes will apply to motor insurance policies issued from December 15. While third-party liability insurance will remain compulsory, customers will have greater clarity about optional protections covering passengers, personal accidents and damage to their vehicles.
The new rules follow a Supreme Court direction in the case of National Insurance Company Ltd versus Smt. Thungala Dhana Laxmi and others. IRDAI issued the circular on November 2, directing general insurers to adopt uniform policy wordings for private cars and two-wheelers.
Under the new framework, motor insurance policies will be divided into four clearly defined sections. However, this does not mean vehicle owners must purchase all four types of protection.
The structure distinguishes compulsory insurance requirements from optional benefits.
This covers the vehicle owner's legal liability arising from injury, death or property damage caused to a third party in an accident. It remains mandatory for all vehicle owners.
This provides protection against legal liability towards passengers travelling in a car, pillion riders on two-wheelers and employees of the insured travelling in the vehicle. This cover is optional.
Personal accident protection for the owner-insured remains mandatory under the applicable rules. Additional protection for passengers, pillion riders and drivers other than the owner-driver can be selected voluntarily.
This protects the insured vehicle against loss or damage. Unlike third-party liability insurance, own-damage protection is optional.
The classification is designed to help policyholders distinguish between insurance that protects against liabilities towards other people and insurance that covers personal accidents or damage to their own vehicles.
One important distinction is that the new framework does not make all insurance sections optional except third-party liability. Third-party insurance will continue to be a legal requirement. Vehicle owners must maintain this protection to cover liabilities arising from accidents involving other people or their property.
The mandatory personal accident requirement for the owner-insured will also continue under the applicable rules.
However, additional personal accident protection for passengers, pillion riders and other drivers remains optional.
Vehicle owners should also understand that third-party insurance does not automatically provide every form of protection available for people travelling in the insured vehicle.
Similarly, legal liability towards occupants and personal accident insurance serve different purposes.
Legal liability insurance addresses the policyholder's liability towards specified occupants, while personal accident insurance provides benefits to persons covered under the policy.
One of the biggest changes concerns how insurance companies present premiums to customers.
Currently, many buyers concentrate on the total amount payable without examining how much they are spending on individual protections.
From December 15, insurers will have to disclose the actual coverage offered and the premium charged for each section separately in the policy schedule.
The premium breakdown must clearly identify the cost of:
Third-party liability insurance
Legal liability protection for occupants
Personal accident insurance
Own-damage protection
This will allow customers to understand the cost of additional protection instead of depending entirely on the overall premium quoted by an insurer.
Separate disclosures could also make comparing insurance policies easier, particularly when customers are evaluating offers from multiple companies.
However, the revised framework does not guarantee that insurance premiums will decline.
IRDAI has introduced additional disclosure requirements intended to improve customer understanding at the time of purchase.
Insurers will have to provide two important documents.
A customer option form will explain the four insurance sections and allow vehicle owners to select the protection they require. Customers must indicate their preferences by choosing the relevant options. This requirement will apply to policies purchased through both online and offline channels.
The completed option form will become part of the insurance policy, making the customer's selected protections identifiable. Obtaining the duly completed form will be mandatory for policies covered by the revised framework.
Insurance companies must also provide a Customer Information Sheet at the point of sale. This document is intended to explain the protection available under the policy and the covers selected by the customer.
Together, the two documents are expected to reduce uncertainty over what a policy includes and what remains outside its scope.
They should also help customers identify situations where additional insurance may be necessary.
The framework also addresses vehicle owners who already hold third-party motor insurance but want additional legal liability protection for passengers or pillion riders.
Such customers will be allowed to purchase Section II occupant liability cover during the existing policy period.
There are three important conditions:
The additional cover must be purchased from the insurer that issued the existing third-party policy.
The policyholder must pay the additional premium applicable to the selected protection.
The new protection will become effective only from the date and time specified in the insurer's endorsement.
Importantly, customers will not have to cancel their existing third-party insurance policies to obtain this additional cover.
This provision applies specifically to the addition of occupant liability protection. It should not be interpreted as permission to add every optional insurance section to an existing policy under the same arrangement.
The new system is primarily a transparency measure rather than a direct attempt to reduce insurance costs.
Although IRDAI has prescribed a uniform structure and standard policy wordings, insurers will retain flexibility in developing coverage options and pricing own-damage insurance according to market conditions.
As a result, the premium charged for own-damage protection may continue to vary between insurance companies. A cheaper policy may not necessarily offer comparable protection.
Vehicle owners should therefore examine the scope of insurance, exclusions, coverage conditions and available benefits before selecting a policy.
The lowest premium should not be the only consideration, particularly when the policy may leave the vehicle owner exposed to substantial financial losses.
IRDAI has also instructed insurers to complete the integration of the revised four-section framework with Bima Sugam by December 15.
The integration is intended to ensure that policies complying with the new structure are available through the platform when the revised rules come into effect.
All motor insurance policies issued from that date will have to follow the new framework.
For car and two-wheeler owners, the revised rules make it particularly important to review the individual components of an insurance policy rather than merely the final premium.
Before purchasing or renewing insurance, customers should check:
Whether mandatory third-party insurance is already active, particularly under an existing multi-year policy.
Whether the required personal accident protection for the owner-insured is in place.
Whether passengers and pillion riders have the additional protection they need.
Whether damage to the insured vehicle is covered.
How much premium is charged for each insurance section.
Whether exclusions, conditions or limitations could affect a future claim.
