IRDAI Mandates Four-Layer Motor Insurance Coverage for Insurers Following Supreme Court Ruling
MUMBAI: The Insurance Regulatory and Development Authority of India (IRDAI) has implemented the Supreme Court’s directive to restructure motor insurance into four distinct sections. This new framework, effective from December 15, 2026, aims to enhance customer awareness regarding the components of their insurance policies, including costs and coverage. The restructuring follows the court’s ruling in the case of National Insurance Company vs Thungala Dhana Laxmi, which mandated a clearer breakdown of insurance options for vehicle owners.
H2: Structure of the New Framework
Under the new framework, third-party liability remains a mandatory component. Optional covers include legal liability for occupants or pillion riders, personal accident cover for individuals other than the owner-driver, and own-damage protection for the insured vehicle. This separation is designed to help customers make informed decisions about their insurance needs.
To ensure consistency across the industry, IRDAI has mandated standard policy wordings based on drafts from the General Insurance Council. Insurers must adopt these wordings and collect a completed customer option form for each policy issued. This form will document the selected covers and be included in the policy.
H2: Customer Information and Transparency
The circular requires insurers to provide a Customer Information Sheet at the point of sale, along with the option form for selecting additional covers. The policy schedule must clearly outline the coverage and premium for each section. This initiative aims to create a transparent record of customer choices, reducing confusion about insured risks.
Existing third-party policyholders will have the option to add legal liability cover for occupants during the policy period by paying an additional premium. This can be done without canceling their existing third-party policies.
H2: Pricing and Digital Integration
While the basic structure and policy wordings are standardized, insurers retain the flexibility to set pricing for own-damage covers based on market conditions. They can also modify general exclusions and conditions as long as they do not limit the basic coverage outlined in the four-layer structure.
Additionally, insurers must integrate this new framework with Bima Sugam by December 15, 2026, ensuring that policies are accessible on the digital insurance marketplace from the implementation date. The framework maintains that third-party liability and specified owner-insured personal accident cover are mandatory, while other components remain optional.
