No Insurance, No Fuel: Government Pushes for Integrated Vehicle Services and Insurance

In a move to ensure that all vehicles on Indian roads are insured with valid third-party insurance, the Union Finance Ministry has proposed the Ministry of Road Transport and Highways to link insurance to essential services like fuel purchase, FASTag issuance, and driving licence renewal or PUCC (Pollution Under Control Certificate) issuance. Currently under review, this proposal seeks to integrate the databases of insurance providers with those of fuel stations, toll plazas, and Regional Transport Offices (RTOs) to enable real-time verification of a vehicle's insurance status.

Read more

Understanding Third-Party Insurance

In India, third party insurance is not just advisable but mandatory under the Motor Vehicles Act. It covers legal or financial liabilities arising from road accidents causing damage, injury or death to a third party.

Unlike comprehensive insurance, which offers coverage for damages to the insured vehicle and the owner-driver, third party insurance addresses the financial implications of harm caused to other individuals.

Vehicle owners who do not have third party insurance face penalties under the Indian motor laws. For the first offence, they may incur a fine of ₹2,000 or face up to 3 months of imprisonment, or both. For subsequent offences, the penalties increase to a fine of ₹4,000, imprisonment up to three months, or both.

Although the new proposal is in its initial phase, it has already sparked debates. It has gained backing by many for enhancing road safety, yet it has met many have raised concerns over the potential inconvenience to vehicle owners.

The government is likely to hold consultations with experts and stakeholders before deciding on this proposal. Once implemented, it could transform how vehicle owners in India obtain insurance coverage.

The Proposed Measures

Under the proposed system, vehicle owners would be required to present proof of a valid third-party insurance policy at the time of:

• Fuel Purchases at Petrol Pumps: Attendants would be required to verify the validity of insurance at petrol pumps before purchasing fuel.
• FASTag Issuance or Recharge: Obtaining or recharging your FASTag would be contingent upon valid insurance.
• Driving Licence Renewal: RTOs would check insurance status as part of the renewal process.
• PUCC Issuance: Issuance of PUC certificates may be contingent upon the possession of valid third party insurance.

These measures come in the wake of concerns over the large number of vehicles plying without valid third party insurance, which is a significant risk to road safety and financial security.

Inadequate coverage

As per data from the Insurance Regulatory and Development Authority of India (IRDAI), around 50% of the estimated 350-400 million vehicles on Indian roads had third party insurance coverage in 2024.

The Parliament Standing Committee on Finance had recently reported that 56% of vehicles plying on roads were uninsured. It asked the government to implement electronic challans across states using data integration and urged states to report data on vehicle registrations and insurance coverage.

Rationale Behind the Initiative

Despite existing legal mandates, a large pool of vehicles still operates without insurance, which leaves accident victims without sufficient compensation and adds financial burden on the government. To address this issue, the government has proposed to integrate insurance verification into essential services in order to:

• Boost Compliance: Implementing several verification checkpoints would make it challenging for vehicle owners to avoid insurance requirements.
• Ensure Victim Compensation: An increased number of insured vehicles implies that victims of road accidents are more likely to receive the due compensation.
• Enhance Road Safety: Insurance providers often promote safe driving habits, which could significantly lower the incidence of road accidents.

Besides expanding insurance coverage, this initiative also aims to enable improved data collection and analysis of insurance penetration rates. This would enable the government and insurance companies to identify regions with lower coverage and implement necessary interventions.

Challenges and Considerations

In July 2024, the Supreme Court of India overturned its 2017 ruling that required a valid PUC certificate for acquiring third party insurance. This decision was made due to the mounting inconvenience experienced by vehicle owners in securing insurance, leaving many feeling overwhelmed. With this new proposal, the government seeks to improve insurance coverage. However, it may introduce certain challenges:

• Implementation Logistics: The proposed system requires secure and efficient verification systems at fuel stations, RTOs, and toll plazas to verify insurance status.
• Enforcement: It is critical to ensure consistent enforcement to lower the risk of misuse or corruption.
• Public Awareness: Extensive campaigns would be required to educate vehicle owners on the new requirements and guidelines.

Conclusion

The government's proposal to connect vehicle services with third-party insurance emphasises its commitment towards enhancing road safety and financially safeguarding accident victims. Nevertheless, turning this proposal into reality demands careful planning and robust strategies. Such measures can cultivate responsible driving behaviours and guarantee fair compensation for those affected by accidents.