The China Mail - India Introduces Four-Layer Motor Insurance Structure for Private Vehicles

The Insurance Regulatory and Development Authority of India (IRDAI) has mandated a new four-layer structure for motor insurance policies covering private vehicles, aiming to provide vehicle owners with greater clarity and choice in selecting coverage options. The circular, released on November 2, 2026, outlines the framework that will apply to all general insurers except stand-alone health insurers and specialized insurers.

The regulatory move follows directions from the Supreme Court of India in the case of National Insurance Company Ltd. vs Smt. Thungala Dhana Laxmi & Others. The court called for a structure that covers third-party liability, legal liability to occupants, personal accident coverage, and own damage protection. IRDAI stated that the initiative is designed to bring clarity about the availability of various policy options, allowing vehicle owners to make informed choices regarding suitable insurance protection.

The new framework will come into effect on December 15, 2026, applying to all private car and two-wheeler insurance policies issued from that date. Under this structure, policyholders will be offered four distinct sections of coverage. Section I covers liability to third parties, which remains mandatory under motor vehicle law and protects the vehicle owner against legal liability for injury, death, or property damage caused to others in an accident.

Section II addresses legal liability to occupants or pillion riders, including employees of the insured. This cover is optional and extends to passengers traveling in the insured car or individuals seated behind the driver on two-wheelers. Section III includes personal accident cover, featuring a mandatory component for the owner-insured and an optional component for other occupants, pillion riders, and drivers who are not the owner.

Section IV covers loss of or damage to the insured vehicle itself. This component is also optional. To facilitate this choice, IRDAI has directed insurers to provide a customer option form through which buyers can select their preferred covers, whether purchasing online or offline.

Existing policyholders seeking to add occupant cover under Section II during the currency of their policy will be able to do so upon payment of an additional premium. However, IRDAI clarified that this additional cover will become effective only from the date and time specified in the endorsement issued by the insurer. Policyholders must exercise this option with the insurer who issued their third-party insurance policy and are not required to cancel their existing third-party policy.

Transparency is a key component of the new rules. Insurers must disclose the actual coverage and the premium charged against each section in the policy schedule, helping customers understand the cost of individual covers. Additionally, insurers are required to issue a Customer Information Sheet at the point of sale alongside the customer option form.

The four-layer structure, uniform policy wordings, and mandatory option form will be integrated with Bima Sugam, India's insurance platform, ensuring these policies are available on the site from December 15. While insurers can continue to innovate and determine pricing for own damage covers based on market forces, they must not restrict the basic coverage prescribed under the four-layer framework.

The regulatory body has emphasized that this is for informational purposes only and advised vehicle owners to consult an insurance expert before making decisions regarding their coverage.

N.Lo--ThChM