Traffic challans last year, if greater than 2, mean higher motor insurance premium this year.
Last month, the Times of India and Economic Times reported that authorities are gearing to mark unpaid challans in a vehicle to pay more premiums for its insurance. It said that if any person carries forward more than 2 unpaid or pending challans from the last financial year, they might be obliged to pay more of the premiums towards their vehicle's insurance policy next year.
Hence, more than 3 traffic violations such as driving on a footpath or driving vehicles that are older than 10 years (in the case of petrol) or 15 years (in the case of diesel) or more in a single year can lead to confiscation of their license for a minimum period of 3 months. Cancellation of a vehicle registration until the imposition of a fine may also include the penalty.
Further, if there was no action from the person on the challan created after 30 days, it would be deemed admitted guilt from his side as the owner of the vehicle.
With this new financial year having kicked in this month, there is speculation about whether indeed it would result in higher premiums on motor insurance this time for those people who have more than 2 pending, unpaid challans from the previous financial year.
Thus, are all these rules being put into active force from this financial year? We speak to experts and decode the matter.
Managing Partner, Accord Juris, Alay Razvi-"The present proposal has not been implemented yet, and it still is in the draft stage. Tracking challan status post-policy issuance poses practical and systemic challenges. As such, it would require a secure and continuous data-sharing mechanism between the Ministry of Road Transport, the State Traffic Dept, and motor vehicle insurers."
In his opinion, implementing this would not have been easy since this would require multiple privacy and compliance concerns to be addressed under the Digital Personal Data Protection Act (DPDP).
Sonal Alagh, Partner, Alagh & Kapoor Law Offices, also affirms that the proposed rule of suspension of driving licenses for non-payment of traffic e-challans within three months has not finally come into effect.
But many other experts say that the integration of e-challan systems with premium insurance is a stepwise implementation. Delhi is even trying real-time data sharing between traffic police and insurance providers through centralized platforms by way of PARIVAHAN PORTAL.
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How will the insurers assess the premium payable against the issued challans?
Soayib Qureshi, Partner, PSL Advocates & Solicitors, says, "Proposed rules suggest a tiered premium model where 2 pending challans in a financial year trigger a 10-20% premium hike."
Others, like Alagh, foresee a point-based system, wherein insurance companies assign a score by which the premium rate is determined from each valid, non-contested challan.
Experts, however, think that premiums will in most cases be based on telematics-based pricing. Insurers may use traffic violation history (for example, more than two pending challans) as one of the measuring metrics for risk-based premiums.
Telementary-based insurance is also popularly known as usage-based insurance or even pay-as-you-drive insurance, in paying premiums to the policyholders depending on how long they actually drive the vehicle. It takes one year as a term of the policy, wherein the insurers estimate the distance covered by the car, either through the reading of the vehicle's odometer or through an app that the policyholder needs to install specifically for this. This is also available as kilometer benefit add-on cover for existing motor insurance.
Hence, since all of this more thoroughly analyzes the kind of behavior drive and how much they utilize, usually, insurance companies also give lower premiums to those perceived by them to be safe drivers, while risky drivers tend to be charged with higher premiums.
How will the erroneously generated challans be handled then?
This form of penalty for vehicle owners has not proven to be without challenges in practicality. As it frequently happens, it turns out that the challans are improperly or incorrectly generated and the driver has to fight it out in Lok Adalats or virtual courts. However, the connection of such challans with premium calculations has the potential to inflate the share of premium payable even if the policyholder is not at fault.
This could be treated with a solution offered to vehicle owners: "The policyholder shall have to dispute and resolve the challan prior to or during the renewal of the policy term. And in the event the issue subsists or is not resolved timely, there is a risk of unjustified premium hike," says Razvi.
"In case the proposal for enhancement in insurance premium is on account of multiple pending challans, premium calculations are likely to be adjusted once these errors are rectified; however, the exact method for handling this remains unclear. It might involve providing evidence of wrong charges or submitting appeals to authorities to rectify the record before insurance premiums are finalized. This should become clear if and when the amended provisions are enforced," says Rahul Sundaram, Partner, IndiaLaw LLP.
Qureshi advises provisionally computing premiums by insurers while holding off increases until issues are resolved." Once validated, refunds are triggered for invalid challans. Regulators (IRDAI) should develop transparent mechanisms for dispute settlement, requiring insurers to verify challan authenticity before applying premiums, thus ensuring fairness," he concludes.
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