IRDAI Circular: Compulsory IMT-29 in Motor Insurance

Narendra Kumar

21 Oct, 2023

On 18th October 2023, the Insurance Regulatory and Development Authority of India (IRDAI) released a circular, Ref No. IRDAI/NL/CIR/MOTOR/178/10/2023-24, addressed to all general insurers, barring stand-alone health insurers and specialized insurers. This circular pertains to the inbuilt coverage of IMT-29 in a private car policy. But what does this entail, and why is it so crucial? Let’s dive deeper into the context and implications of this directive.

Background:

The Indian Motor Tariff 2002 (often abbreviated to “Motor Tariff”) has been the defining regulatory framework governing motor insurance policies in India. Within this document, Clause 7 of Section 2 specifically addresses the situation involving a private car owned by an employer and used for transporting employees. The said clause, as it stood before this directive, allowed for an additional coverage — termed as ‘Legal Liability to employees of the insured travelling in and/or driving the employer’s vehicle’. This essentially means that if any employee met with an accident while traveling in or driving the employer’s vehicle, the employer could provide insurance coverage for them. However, to avail this coverage, an additional premium of Rs. 50 per employee (up to the vehicle’s licensed seating capacity) was required.

The issue that has arisen from this situation pertains to the difficulty faced by employees or their dependents in seeking compensation from employers in the tragic event of an accident. Recognizing this gap, the Madras High Court, in its verdict on CMA No. 2166 of 2019 & CMP No. 8871 of 2019 (United India Insurance Co. Ltd., Vs Ilakkiyamathi & others), highlighted the ordeal claimants undergo, especially when the claimant loses their sole breadwinner or faces serious injuries.

The Mandate:

Taking note of the concerns raised by the Madras High Court, the IRDAI has, in its capacity under Section 14(2) of the Insurance Act 1938, issued directives to all general insurers involved in motor insurance. Here are the primary takeaways from the circular:

1. Compulsory Inbuilt Coverage: Insurers must now compulsorily offer the IMT-29 coverage as an inherent part of the private car policy for vehicles used to transport employees. This means that employers will no longer have to opt for this coverage separately.
2. Location of Coverage: This mandatory IMT-29 coverage will be situated under the Compulsory Motor Third Party Liability Section of Private Car Package/ Bundled Policies. It will also be found under standalone policies insuring Compulsory Motor Third Party Liability.
3. No Additional Premium: Crucially, insurers cannot charge an additional premium for this coverage, at least until further directives from the IRDAI.

Implications:

For Insurers: The immediate effect for insurers is the need to integrate IMT-29 coverage into their standard private car policies without charging an additional premium. This could potentially affect the premium calculations and the risk assessment models for private car policies.

For Employers: Employers can now be assured that their employees are automatically covered without the need to pay an additional premium. This could serve as a morale booster and could also serve to enhance the trust quotient between employers and employees.

For Employees: The most significant impact is on the employees and their families. They now have a safety net, ensuring that in the unfortunate event of an accident while commuting in the employer’s vehicle, they have insurance protection.

Conclusion:

The IRDAI’s directive to make IMT-29 a compulsory inbuilt coverage in private car policies is a commendable step towards enhancing the safety net for employees commuting in their employer’s vehicle. It reduces the financial strain on employers and ensures that employees or their families don’t have to endure a prolonged struggle for compensation. This move exemplifies how judicious intervention by regulatory bodies, informed by judicial observations, can usher in meaningful and progressive change in the industry.