With an alarming increase in the number of accidents and the high cost of living, it is important to revise compensation benefits for those affected the most in these unforeseen situations.
According to the new amendment introduced by the government in the Motor Vehicle Act, 1988 through notification dated May 22, 2018, the amount of compensation payable has been increased to Rs. 5 lakhs, in case of death. This revision shall be applicable for all claims made on and from May 22, 2018. This amount payable has been increased post factoring in the current cost of living in India.
Earlier, the minimum compensation in case of death caused due to accidents was Rs. 50,000 and for permanent disability, the affected party was given Rs. 25,000. However, in the new amendment the minimum compensation for permanent disability has been revised to Rs. 50,000 and amount to compensate for minor injuries caused by accidents is fixed at Rs. 25,000.
This notification provides a formula to calculate the amount payable if the accident results in permanent disability, which is - Compensation amount = Rs 5 lakh X percentage disability as per schedule I of the Employee's Compensation Act, 1923.
Another notable change is that each year the compensation amount will increase by five percent annually for all types of compensation with effect from January 1, 2019. This is implemented keeping in mind the increasing cost of living across the country.
However, with this increase, one may wonder if this change would have a direct impact on motor insurance premiums? The answer is no. Since the third party car insurance premiums are decided by the insurance regulator annually based on past experience of claims, there hardly would be any variance in the premium amounts paid by policyholders.
Players in the insurance field are hopeful that, while cases with larger claim amount will have minimal impact and the process shall remain the same, this change will enable cases of smaller claims to be processed seamlessly, thereby saving a lot of time, and providing instant support to those in need.