No third-party insurance? You may not get to buy fuel, FASTag

Want to buy fuel, get a FASTag, or renew your driving licence? Soon, you may have to show that your vehicle has valid third-party insurance.

The Union finance ministry has asked the road ministry to consider various measures to expand third-party insurance, which remains patchy despite stringent punishments listed under the Motor Vehicles Act, two people aware of the matter said. These include sending text messages to uninsured vehicle owners, as well as insisting on third-party Insurance to buy fuel and obtain FASTags, as well as renew driving licence and pollution control certificate.

Under Motor Vehicles Act, 1988, all motor vehicles must compulsorily have an insurance policy covering third-party risks, and offenders can be jailed for as long as three months. The move comes at a time when more than one in two vehicles on Indian roads does not have third-party insurance, which is designed to cover the costs of losses to a stranger in an accident.

“These proposals are being worked out, and soon, the road ministry may make changes in rules governing Motor Vehicles (MV) Act to link various vehicle-related compliances with third-party insurance cover and issue necessary notifications. Also, road ministry would also issue necessary directions to all state governments and union territories for strict enforcement of the provisions of the MV Act that mandates compulsory third-party insurance cover,” one of the two people cited above said on the condition of anonymity.

Queries emailed to the ministries of finance and highways remained unanswered till press time.

Poor coverage

According to data from the Insurance Regulatory and Development Authority of India (Irdai), third-party insurance coverage in India was just around 50% of about estimated 350-400 million vehicles plying on Indian roads in 2024.

Recently, the parliament standing committee on finance suggested the government consider ways to increase third-party cover. In its seventh report presented in Parliament last month, the committee noted that as of 31 March, 2020, as much as 56% vehicles were uninsured, and asked the government to examine the implementation of electronic challans across states by leveraging data integration. The report said states should report data on vehicle registrations and insurance coverage so that appropriate follow-up action can be identified and financial institutions should consider disbursing auto and commercial vehicles loans only on getting proof of insurance coverage.

“This policy aims to establish a unified system where essential services are tied to compliance, by successfully integrating vehicle insurance into daily operations and significantly lowering the prevalence of uninsured vehicles on the nation’s roads,” said Rajat Mahajan, Partner and Automotive sector leader, Deloitte. “The FASTag ecosystem in India has already achieved significant milestones, with transaction volumes climbing to 381.98 million in December and the transaction value increasing to ₹6,642 crore compared to ₹6,070 crore in November. Building on this robust digital framework, integrating insurance verification can streamline enforcement mechanisms while delivering a seamless experience for vehicle owners,” Mahajan added.

Punishable offence

Under MV Act, vehicle owners without third-party insurance are punishable under Section 196 of the Motor Vehicles Act, 1988 with first offence getting imprisonment up to three months, or fine of ₹2,000 or both; and subsequent offence having provision for imprisonment up to three months, or fine of ₹4,000 or both.

“Integrating Aadhaar with FASTag, third-party insurance, traffic violations, and pollution certificates can greatly enhance the effectiveness of the proposed system,” said Haroon Asrar, a partner at law firm Solomon and Co. “This will allow vehicle owners to manage their insurance coverage, traffic fines, toll payments, and pollution certificates all in one place, reducing the need for multiple apps or websites for different tasks. In Europe, similar services are connected to citizens’ Social Security Numbers, which has led to higher compliance and easier access to services for the public,” he added.

Apart from widening insurance coverage, the move is also expected to enable better data collection and analysis of insurance coverage rates, allowing the government and insurance companies to identify areas with low penetration and tailor interventions accordingly.

“Increased insurance penetration creates a larger risk pool, which can lead to more competitive premiums and improved benefits for policyholders,” Mahajan said.