Buying a new car or two-wheeler is set to become more expensive after the Supreme Court on Tuesday directed that all new private cars be sold with a mandatory four-year third-party insurance policy and new two-wheelers with a six-year policy, extending the existing compulsory insurance tenure by one year to improve compliance with motor insurance and enhance road safety.
A Bench of Justices Sanjay Karol and Prashant Kumar Mishra directed the Insurance Regulatory and Development Authority of India (IRDAI) to immediately issue the necessary directions, observing that despite its 2018 order mandating three-year third-party insurance for new cars and five-year cover for new two-wheelers, a large number of vehicles continue to ply without valid insurance.
The court said it was not inclined to accept the recommendation of IRDAI and the General Insurance Council against extending the mandatory insurance period, holding that "it is in the interest of road safety that the period be enhanced by one year."
The judgment came while dealing with the larger issue of uninsured vehicles and lack of uniformity in motor insurance policies. The Bench noted that nearly 56% of vehicles plying on Indian roads are uninsured—around 16.54 crore out of 30.48 crore registered vehicles—leaving accident victims and their families without timely compensation and defeating the purpose of compulsory third-party insurance under the Motor Vehicles Act.
To make insurance products easier to understand, the court directed IRDAI to introduce a uniform four-layer policy structure for private vehicles comprising mandatory third-party insurance, optional legal liability cover for occupants or pillion riders, optional personal accident cover for the owner, driver and occupants, and optional own-damage cover. Every customer must be provided a standardised "customer option form" at the time of purchase, allowing them to choose optional covers through a simple opt-in mechanism.
The court further directed IRDAI, in consultation with the General Insurance Council and insurers, to frame uniform policy wordings for optional covers and make it mandatory for insurers to provide a consumer-friendly information sheet explaining the mandatory and optional components of motor insurance at the time of sale, both online and offline.
To improve enforcement, the Bench ordered integration of Automatic Number Plate Recognition (ANPR) cameras with the Insurance Information Bureau and VAHAN databases to automatically identify uninsured vehicles and issue e-challans. It also directed states to equip traffic police with handheld devices or mobile applications linked to these databases for real-time verification of insurance status.
The court also asked IRDAI and the Ministry of Road Transport and Highways to examine pilot projects linking fuel sales to valid insurance, under which uninsured vehicles could be denied fuel until they obtain the mandatory cover. It also proposed a pilot project enabling citizens to verify the insurance status of vehicles to promote compliance.