SC ruling may widen motor insurance cover for vehicle occupants, pillion riders

Mumbai: Motor insurance policyholders could get wider protection for occupants travelling in their vehicles after the Supreme Court ruled that comprehensive or package policies cover vehicle occupants and directed the insurance regulator to standardise policy wording for occupant and pillion rider covers.

The Supreme Court, in its recent judgment, held that an occupant travelling in a vehicle covered by a comprehensive policy is entitled to compensation. It also directed IRDAI to come up with uniform wording for optional covers for occupants and pillion riders, while allowing insurers to decide the coverage and pricing of such additional protection.

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For consumers, the move could bring greater clarity on what is covered when a passenger or pillion rider is injured or dies in an accident. At present, differences in policy wording can make it difficult for customers to understand the extent of protection available under their motor policy.

The ruling comes as insurers are already facing higher third-party claim costs following another Supreme Court judgment. Earlier this year, the court's judgment in the Shishu Pal case fixed a minimum notional value of Rs 30,000 a month for homemakers, increasing compensation liability in motor accident claims involving homemakers.

ICICI Lombard General Insurance set aside an additional Rs 165 crore in the June quarter of FY27 towards motor third-party claims following the judgment. The higher provisioning contributed to a 46% year-on-year decline in its quarterly net profit to Rs 403.17 crore to Rs 403.17 crore and pushed its combined ratio to 107.2%, although the company expects the ratio to return towards its historical range of 102-103% over the remainder of FY27.

Insurers are now assessing the potential impact of the latest ruling on occupant coverage. If standardised coverage results in more claims being admitted or higher payouts, insurers could see an increase in motor claims costs, which could eventually put pressure on premiums. For customers, however, clearer coverage could reduce disputes at the time of a claim and provide greater certainty about the protection they have purchased.

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Separately, the Supreme Court has also extended mandatory third-party insurance for new vehicles and directed authorities to explore technology-led enforcement of the requirement. The court has proposed linking insurance records with toll systems and exploring a mechanism under which vehicles without valid insurance could be denied fuel.

General insurers executives say after this ruling enforcement could bring more vehicles into the insurance pool and improve motor insurance penetration. About 56% of vehicles in India are currently uninsured, with the problem particularly severe among two-wheelers and tractors. Insurers say the renewal rate for two-wheelers after the initial five-year insurance period is as low as 5%, so around 95% of owners do not renew their policies after the mandatory initial cover expires.

“If there is no insurance, there should be no fuel,” a senior insurance executive said, adding that linking the government's vehicle database with fuel pumps could make enforcement simpler since virtually every vehicle needs to purchase fuel.