The Finance Ministry has issued a notification to four state owned general insurance firms asking them to opt negotiated settlement or out of court settlement in third party motor insurance claims. In addition to this, the ministry has directed general insurance firms to end the norm of issuance of cover notes, to control fraud claims and limit the losses arising in third party motor auto insurance segment. Although, the letter addresses only state owned insurance firms, but private insurance companies have also been asked to participate.
Third party motor insurance is the minimum mandatory cover required for four wheelers in the country. There are other kinds of auto insurance coverage also. It helps to do away with financial liabilities in cases where vehicles damage the life or property of third parties. Plus, in case of bodily damage or death of a person, the third party insurance cover is unlimited and the insurer has to bear the entire amount of compensation.
On the matter, Mr. Vijay Kumar, the head of motor insurance, Bajaj Alliance general Insurance said, "Court proceedings may take a much longer time to give its judgement on motor insurance claims. So to ensure speedy settlement in case of damage to the car, it is preferable that such claims are settled through own damage cover and not through the third party cover." The Chief Executive Officer of Magma HDI General Insurance Co. Ltd. added, "Cases can drag on for three to five years that's because there aren't enough judges and courts."
So, to avoid long delays in judgments, insurance companies opt for out of court settlements in which claims are negotiated and settled faster.