In most parts of the world, including the United States, Canada, Australia, France, Malaysia, India, and Pakistan, insurance is a legal requirement for all motor vehicle owners, as it helps to ensure that victims of accidents caused by the insured driver are able to receive compensation for their losses and expenses. Without MTP insurance, the cost of compensating the third party in case of an accident could be substantial.
MTP insurance helps to reduce the financial risk associated with driving a motor vehicle, and provides peace of mind to the driver, knowing that they are protected in case of an accident. Overall, MTP insurance plays a crucial role in promoting road safety and reducing the financial burden associated with motor vehicle accidents.
Introduction
Motor Third Party (MTP) insurance is a contract between the insured and the insurance company, wherein the insured pays a premium to the insurer to cover the cost of any damages caused to a third party in the event of a road traffic accident.
The third party is someone who is not the insured or the insurer and may be the victim of the accident or their legal representative.
This type of insurance is known as third-party insurance, which is a form of liability insurance. The insured is liable for any damages or losses incurred, if proven negligent.
Automobile insurance is one of the most common forms of third-party insurance. Motor third-party insurance can help promote road safety, protect accident victims, and ensure fiscal responsibility on the part of vehicle owners.
Motor third-party insurance can provide financial compensation for accident victims by covering the damages and injuries caused to third parties in case of an accident. This helps protect the interests of accident victims and provides them with financial compensation for their losses.
The importance of third-party insurance lies in its ability to provide coverage to the insured for any injuries or damages that they may have caused.
In Pakistan the subject of MTP insurance falls under ambit of Federal Statute i.e. Motor Vehicles Act, 1939. The law provides compensation to third party in case of death and bodily injuries caused due to the negligence of the driver or the owner of the vehicle, which has been insured for the MTP insurance coverage.
Section 94 of the Saved chapter VIII of the repealed Motor Vehicles Act 1939 stipulates that no person will be allowed the use of motor vehicles in a public place unless there is in force a policy of insurance complying with the requirements as laid down in section 95 of chapter VIII.
ENABLING ENVIRONMENT
Legal Framework
Motor Vehicles Act, 1939 (Chapter VII, VIII, Section 125)
West Pakistan Motor Vehicles Ordinance, 1965
National Highway Safety Ordinance, 2000
Insurance Ordinance, 2000
Key Stakeholders
Provincial Motor Registration Authorities
Traffic Police
National Highway and Motorway Police
Insurance Companies
SECP
Ministry of Communication
MTP insurance is particularly important for countries like Pakistan for the following reasons:
Protection for Accident Victims
In Pakistan, road accidents are unfortunately quite common and can result in significant financial losses and medical expenses for the victims. MTP insurance ensures that the victims of road accidents are compensated for their losses and injuries, which can help them recover and alleviate some of the financial burden associated with the accident.
Legal Compliance
MTP insurance is a legal requirement in Pakistan for all vehicles operating on public roads. This means that vehicle owners must have MTP insurance in order to legally operate their vehicles. Compliance with this requirement is essential to ensure road safety and to protect the interests of accident victims.
Promotion of Responsible Driving
By providing coverage for damages inflicted by an insured driver onto third parties, MTP insurance fosters a sense of responsibility and caution among drivers, leading to a potential decrease in road accidents and an overall enhancement in road safety.
Fulfilment of SDGs
Compliance with motor third-party insurance in Pakistan contributes to SDGs 3, 8, and 9. It promotes good health and well-being by ensuring access to healthcare and financial protection for accident victims. It supports decent work and economic growth by providing financial stability and preventing individuals from falling into poverty. Additionally, it fosters industry, innovation, and infrastructure development in the insurance sector, leading to a larger market, increased investment, and improved resilience. Overall, compliance with motor third-party insurance aids in achieving sustainable development goals in Pakistan.
Reduction in the Financial Burden on the Government
In the absence of MTP insurance, accident victims may have to rely on government assistance for their medical expenses and other damages. By ensuring that all drivers have insurance, the burden on the government to provide assistance to road accident victims can be reduced.
Market Development
MTP insurance can boost the development of insurance market in the country, with enhanced premiums and subsequently addition of billions of FED to national exchequer.
Impediments in Motor Third-Party Insurance Compliance:
1 Absence of Effective Mechanism for Verification of MTP Insurance Policies at the Time of Registration
Currently there is no effective mechanism available for verification of MTP insurance policies by relevant departments at the time of registration of vehicles. West Pakistan Motor Vehicles Ordinance, 1965 does not provide any enabling provision for checking and verification of MTP insurance at the time of registration of vehicles either. Implementation of MTP can be carried out by excise and taxation department while registration of vehicle, re-sale or ownership transfer or payment of annual taxes.
2 Issuance of MTP Certificates by Cooperative Societies
Reportedly provincial cooperative societies are also issuing motor third party insurance policies. Issuance of these policies by entities not registered as insurer under Insurance Ordinance 2000 is not in line with the requirement of Insurance Ordinance 2000. Resultantly, these cooperative societies contribute to the issuance of bogus policies. These policies do not provide any material help to victims of road accidents. The circulation of bogus certificates is a serious issue because it puts other drivers and pedestrians at risk. If an uninsured driver is involved in an accident, they may not be able to pay for the damages they caused, leaving the victim with no recourse for compensation.
3 Insufficient Awareness Among the Masses
Insufficient awareness among the masses is one of the key reasons for non-compliance of motor third-party insurance. Despite being a mandatory requirement, there is only an 3% compliance rate. There could be two possible scenarios: either the masses do not know the mandatory nature of MTP insurance or they are unaware of its significance. The lack of awareness also leads to misconceptions about the policy. Faction of society believe that this policy is not required for personal vehicles and is only necessary for commercial vehicles which is not correct. Another reason for non-compliance is the cost of the policy. Vehicle owners consider it an unnecessary expense, especially if they have never been involved in an accident before. They fail to recognize the potential financial and legal consequences of not having insurance policy in place.
4 Dragged-out Court Procedure
Long and extended court procedure is another influencer for the implementation of low compliance of the Motor Vehicles Act 1939. As the law states that after any road accident, the victims will reach out to the court for determination of the consequent amount to be paid.
5 Low Compensation Limits in Motor Vehicle Act 1939
Unattractive limits of compensation in case of road accident is one of the key factors contributing to low compliance with motor third party insurance. Currently, where the vehicle is a goods vehicle, a limit of twenty thousand rupees has been set up in respect of the death or bodily injury to employees other than the driver being carried in the vehicle. Similarly, in the case of passenger-carrying vehicles, a total of Rs. 20,000 has been defined with a further division of Rs.4,000 per person for vehicles carrying up to six persons and Rs.2,000 per person for vehicles carrying more than six persons.
Furthermore, a shortcoming in the existing law of the Motor Vehicles Act 1939 is the absence of separate compensation limits for bodily injuries. The Act only specifies a minimum amount of compensation to be paid to victims of accidents caused by motor vehicles. This amount is usually paid in case of deaths and even in that case, the compensatory amounts are very lower. These amounts need to be revised with respect to bodily injuries along with the compensatory amount in case of death.
6 Lack of Provision for Effective Implementation/Verification of MTP in NHSO 2000
Insufficient awareness among the masses is one of the key reasons for non-compliance of motor third-party insurance. Despite being a mandatory requirement, there is only an 3% compliance rate. There could be two possible scenarios: either the masses do not know the mandatory nature of MTP insurance or they are unaware of its significance. The lack of awareness also leads to misconceptions about the policy. Faction of society believe that this policy is not required for personal vehicles and is only necessary for commercial vehicles which is not correct. Another reason for non-compliance is the cost of the policy. Vehicle owners consider it an unnecessary expense, especially if they have never been involved in an accident before. They fail to recognize the potential financial and legal consequences of not having insurance policy in place.
7 Lack of centralized data base
Currently, there is no centralized data base available from where issuance and genuineness of motor insurance polices can be verified. Further, without a central database, it is difficult for authorities to verify whether a driver has valid insurance coverage, which makes it easier for uninsured drivers to operate on the roads. The absence of a centralized database makes it easier for fraudulent insurance policies to be issued and go undetected. This contributes to a lack of trust in the insurance industry and a further decrease in compliance with MTP insurance.
Copyright Business Recorder, 2023