CHAPTER -2

LITERATURE REVIEW

2.1. Introduction

Some of the scientists and scholars have considered it undesirable to study closely the

related literature, fearing that the researcher's mind might be conditioned to see the

problem in the same way as earlier scholars are seeing and can thus overlook a new

approach. But a researcher cannot start any work in vacuum. One has to be well read in a

particular field to have mastery over it. Only then one can think over any problem,

judiciously and try to solve it by creative suggestions. Review of related literature is not

merely jotting down previous studies together; rather it is an extensive and critical

reading of related literature and then amalgamation of all.

2.2. Need For Reviewing The Literature

A good literature review is needed as it demonstrates the knowledge of the field and also

helps to find out the most important as well as neglected issues and their relevance with

present study. Review of related literature helps in establishing theoretical framework of

the study. In addition to this reviewing helps to locate and summarize the findings of

other similar researches. This will shed light on any loopholes or gaps which previous

researches have failed to fulfill. It obviates the need for present research and also helps in

convincing the reader about, what going on, is important last but not the least, after

reviewing the literature, researcher is in a better position to select suitable research

methods to address a particular problem and identify areas of prior scholars to prevent

duplication of effort.

57
After cognizing the importance of review of related literature in any research work, an

exhaustive study has been made in this field. Several studies published in different

reputed insurance journals of India as well as abroad are considered.

This chapter envelops, review of some vital literatures on motor insurance with special

reference to Indian and International market. This chapter covers review of such issues

which are sustainably subjects of the present research.

The review has been done in a classified manner based on issues like

1. Problems & Issues in Motor Insurance Policy Proceedings,

2. Scope of Improvements & Benefits,

3. Customer Satisfaction and Service Quality in Motor Insurance,

4. Indian Motor Insurance Market,

5. Claim Settlement in Motor Insurance.

2.3. Literature Background

2.3.1. Problems & Issues In Motor Insurance Policy Proceedings

Agarwal. (1986)1:In the study author revealed that motor accident claims are the most

common amongst different types of claims, arriving out of various policies; but

unfortunately, they are being handled by immature surveyors and loss assessors. These

motor claims are receiving the least attention of the industry, and as a result everybody is

facing a lot of problems while processing such claims. Probably, it is the only subject, out

of many branches of the general insurance industry which does not have any guideline

whatsoever.

58
Srinivasan. (1990)2: In this research paper the author has pointed out three challenges

that motor insurance business faced, firstly on one side the industry has to be prepared to

manage a fast growing portfolio that does not show any proclivity to profitability,

secondly the sheer volume of loss that be brought to bear on the industry by the motor

business and lastly change in psychology of the operators .

Like other industries where change in technology or process affects their

competitiveness, viability and profitability, the insurance industry also is quite

susceptable to such changes. After all insurance business is also a commercial

proposition. The insurers have to stay in the business viable. So, it is imperative that the

insurers should adjust the underwriting methodology recognising the variation in risk

factors brought about by change in technology and offer new services to meet the

demands of the clients.

In Motor insurance business too, such an approach is needed talking into account:

(1) Change in technology in the auto insurance:

a) Big vehicles with higher pay loads are increasing, vehicles with twin rear axle are

put on road.

b) Articulated vehicles‘and containerised cargo vehicles‘ use has increased.

c) The use of F.R.P. (Fibre reinfored plastic) is increasing.

(2) Change in type of operation: The commercial vehicles which were largely used

in one state or one or two adjoining states has become a norm of olden days. Several

vehicles ply on special permits to cover large territory. Five state composite permit, seven

59
state national permit, zonal permit etc. Enable the vehicles to cover very long distances.

This change in type of operation makes control of operation a difficult task and this

introduces a new dimension of risk. Contract carriage operating under All India permit

also form a different class of risk since the operation takes the vehicles to far off places

where the insured cannot exercise proper control.

(3) Change in psychology of the operators: The tendency of the insureds is to

obtain the maximum benefit possible when a claim occurs. They try to cover up various

kinds of losses they suffer when an accident occurs. The motor policies indemnifies

against loss or damage suffered on account of accidents caused by stated contingencies:

but the amount payable as claim is circumscribed by limitations, exclusions and policy

conditions.

The future of motor insurance in India lies in adopting innovative approach to broaden

the premium base. Incresed premium base will be able to absorb the load of heavy claims

outgo. This can be done by: Scientifically analysing the risk potential and use it for

constructuring premium rates; offer additional cover that can meet specific needs of

insureds as well as bring in additional premium and introduce altogether new services.

Mony. 2005)3: In this article author focused on various issues related to Motor Tariff

rates, that tariff rates has a very significant effect on motor vehicle insurance, it

constitutes 40 % of the business. Motor vehicle insurance companies facing continuously

adverse claim experience through its statutory legal liability section. A large amount of

motor vehicle insurance was taken but commercial vehicles owners which has heavy

incidence of claims for several years. The commercial motor vehicles owners were not in

the favour of increasing motor tariff rate and most of the times they oppose this through

60
stikes. Several measures were taken by various committee to solve the issue related to

motor tariff rate but nothing yet to be done. So from the review of this article we

conclude that author presents the problem of motor insurance commonly related to

commercial vehicles, claim settlement burden and tariff rates.

Das.(2013)4:In this article author covered motor third party liability and motor tariff

provisions. Further he covered Motor Vehicle Act on OOGOHAR (Owner of goods or

his authorised representatives carried in the vehicle), methodology for fixing basic

premium, road map and action plan.

Jawaharlal. (2013)5: revealed the challenges of Indian motor insurance. The sheer

number of motor vehicles plying on Indian roads; and the vast number of vehicles that

get added progressively year after year would by themselves suffice to ensure that the

operation of the law of large numbers is in place. Further, the vehicles plying on the roads

are mandated to possess valid insurance without which it is a punishable offence.

However, the fact that several vehicles that ply on Indian roads do not carry a valid

insurance (reasonable estimates put it anywhere around 40 % of them) is one that needs

to be taken seriously and tackled at the right places. This alone could be a major factor

for the motor portfolio to bleed year after year.

Almost all the automobile dealers in the country have made it a point to ensure that motor

insurance is obtained along with the other essential documents that enable a vehicle to be

used on the roads. Thus, there is a vast improvement in the number of new vehicles with

valid insurance. However, the real problem is the renewal of the policies from the second

year onwards when the vehicle owner fails to take it seriously. Even among those that go

to renew their policies, there is a high incidence of opting only for the mandated third

61
party liability, thereby defeating the very objective of insurance. Time once again to

emphasize on the need for consumer education and awareness and also their should be

attempts to enlist the co-operation of other organizations like the transport authorities and

the police to ensure that all the vehicles are duly insured.

Thorpe. (2013)6: The present article highlighted the importance of third party motor

insurance with reference to Road Traffic Act,1998 and further in the amending Act,1991

it was defined that gender cannot be used to set premium amount and now motorists

prefer telematics- aʻpay as you drive‘ model where premium are based on the data

transmitted from a mini computers in cars and youngsters were the first to adopt it.

Motor insurance is also one class where there are several controversies associated with

claim settlements. There is a huge role for various stakeholders, especially the service

providers or the motor garages and the surveyors, to register an improvement in this

direction so that the large number of consumer grievances is arrested. The element of

moral hazard also ranks high in this class for obvious reasons. Players and distributors

should take additional efforts to properly explain the operation of deductibles and no-

claim bonus to the policyholders so that they are encouraged to desist from making at

least small claims.

In a few developed markets, there are various facilities given to policyholders to ensure

that they maintain their vehicles in such a condition that the possibility of accident

proneness is reduced to a great extent. This would be useful as a wonderful underwriting

tool and also helps in ensuring to put in place a price commensurate with the risk. While

it would be ambititious to expect that such finer nuances can be introduced into the

62
Indian market right away, efforts should be to reduce the extent of applying the same

rules and standards across the broad thereby disincentivizing the better risks.

Falaknaaz. Syed.(2013)7 : Non-life insurance companies are witnessing changing

customer needs and preferences in motor insurance policies, which is their largest

business segment. Customers no longer want plain vanilla insurance policies that just

cover their car, truck or two-wheeler, but are increasingly asking for services based

insurance coverage. This article looks at the changing trends in the auto industry, the

resulting growth drivers and challenges for insurance companies in motor insurance

business. According to the data from insurance regulator (IRDA), the total gross written

premium in motor insurance till the nine months ended December 2012 was Rs 21,219

crore, out of which, own-damage contributed Rs 12,080 crore, while third-party

insurance was Rs 9,139 crore. The 16 private insurers had a share of Rs 11,163 crore in

the total motor insurance premium from April-December 2012. The motor insurance

segment accounts for the largest business share for non-life insurance companies

contributing 45.84 per cent in 2011-12 (42.68 per cent in 2010-11) and growing at a

healthy growth rate of 33.38 per cent (20.82 per cent in 2010-11).

Challenges in motor insurance: According to estimates, around 40 per cent cars and 70

per cent two wheelers are underinsured. The traditional distribution channels have failed

to spread the insurance net beyond a point. Since the premium of an insurance policy for

a two-wheeler is less than Rs 1,000, agents do not consider it a lucrative business due to

lower commissions. Non-life insurance companies have time and again stressed the need

for introducing long-term two wheeler policy. The other challenge faced by insurers is

that there is not much of data to help them in pricing a risk. According to a report

63
published in 2012 by the Road Transport Authority, the driver‘s fault account for a

whopping 77.5 per cent of the total road accidents. Yet the pricing is based more on the

year of manufacture of the vehicle, engine capacity, price and the zone in which the

vehicle is bought and less on the age, occupation and credit score of the driver and usage

of the vehicle.

Aslesha & Pramod.(2016)8: In today‗s world the problem facing by insurance business

markets is not a shortage of goods but a shortage of customers. Insurance is ―PEOPLE‘S

BUSINESS‖. Insurers are dealing with people who are their policyholders, claimants,

intermediaries, beneficiaries and even employees. Insurance is sold and seldom brought.

Insurance selling is complex & difficult. All over the world Insurance is sold through

intermediaries only. There is thus, a dire need for ―our People‖ to be well-trained &

professional so that the interest of policyholders is protected under the insurance contract

and full benefits available to the customer. Instead of OVER PROMISE & UNDER

DELIVERY‖ the motto should be ―UNDER PROMISE & OVER DELIVERY‖. This has

not been an easy period for insurance companies. The cultural, operational and general

along with the specialized role of insurers in the market and market challenges are

converging; thus shifting the overall market landscape and forcing insurers to re-examine

how they should conduct their business. In this paper author aims to have an overview of

motor insurance as a branch of insurance and study the effects of changing environment

after detarrification and privatization.

2.3.2. Scope of Improvements & Benefits

Boyd.(1962)1: The author made an attempt to focus on the most important features of

Swedish motor insurance, that was open publicity towards claims statistics, this was an

64
attitude of mind engendered, perhaps, by the requirement of the compulory law, which

creates a sence of social responsibility among the people. Further author explained

various factors which prevents road accidents, which were stringent regulations,

compulsory examination of suspects, comprehensive police control of traffic by means of

radar, speed recorders, photographic evidence .etc, restrictions on dangerous overtaking

manoeuvres and development of a social conscience among motorist.

White. (1966)2: The author explored various aspects of Knock-For-Knock agreement,

that it is the only agreement from the series of agreements where there is an arrangement

for insurers to save them from costly claims investigation and negotiation. It has two

benefits, it saves both time and money of the insured. Further assumptions were given

that if two insurers are interested in the same claim, it is wasteful for each to investigate

all the circumstances and then deal with each other as if they were complete

strangers.The normal basis of the motor Knock-For-Knock agreement is that after a

collision between two or more vehicles each insurer pays the cost of repairs to the vehicle

he insurers (provided his cover is comprehensive). Neither insurer make any attempt to

recover the cost of his repairs from the other party, no matter how much the other may

been at fault. So in every accident where there is only damage to vehicles (provided they

both are insured comprehensively) the insurers‘only concern is to get them repaired

quickly and to the satisfaction of the owners.

Lemaire. (1995)3: According to the author, automobile third-party liability insurance has

consequently been made compulsory in most developed countries, and actuaries from all

over the world face the problem of designing tariff structures that will fairly distribute the

burden of claims among policyholders. The fundamental principle of insurance consists

65
in forming a pool in which the policyholders put their risks. If these risks are not all equal

to each other, it is fair to ask each member to pay a premium that is proportional to the

risk that they imposes on the pool. When constructing a set of rates, it is of crucial

importance to estimate the underlying risk of each insured party so that the costs of

claims can be shared fairly. The main task of the actuary is to design a new tariff

structure and make it as fair as possible, by partitioning all polices into homogeneous

classes, with all policyholders belonging to the same class paying the same premium. In

automobile third-party liability insurance, classification variables- a priori variables-

introduced to partition risks into cells commonly include the age and gender of type

policyholders, the type and use of their cars, and the place where they reside.

George (2011)4: The author explained various approaches for compensating auto

accident victims. In many cases, innocent persons who are injured in auto accidents are

unable to recover financial damages from the negligent motorists who injured them.

Although accident victims may have bodily injuries or suffer property damage, they may

recover nothing or receive less than full indemnification. To deal with this problem, the

states use a number of approaches to provide some protection to accident victimss from

irresponsible and reckless drivers. They include the following: Financial Responsibility

Laws, Compulsory Insurance Laws, Unsatisfied Judgement funds, Uninsured Motorists

Coverage, Low-Cost Auto Insurance, ―No Pay,No Play‖ Laws and No-Fault Auto

Insurance.

According to Krishnan Aarti.(2015)5: Motor insurance is the largest segment of general

insurance in all developing countries, not just India. In Asia, most nations have 50-60 per

cent of their business originating from the vehicle business. As income levels improve

66
with economic development, the first thing people buy is a vehicle. Thus, motor

insurance is the first segment to grow.

2.3.3. Customer Satisfaction & Service Quality In Motor Insurance

Royne. Stafford & Wells. (1998)1:According to the author insurance industry has placed

increased emphasis on service quality and customer satisfaction as companies seek to

compete with generally undifferentiated products. This attention to customer service

dictates that insurers understand exactly what elements individuals use to assess their

providers‘ performance. This study examines the most significant dimensions of service

quality and customer satisfaction across four large companies in the auto casualty

industry, using the familiar SERVQUAL instrument. Results indicate that reliability is

consistently the most important determinant of both perceived service quality and

feelings of satisfaction among customers engaged in auto insurance claims

Han. B. Kang.(1999)2:The study deals with the consumer satisfaction and the service

quality of the private passenger automobile insurance that accounts for over 40 % of the

total premiums written in the US property and casualty insurance industry. The author

makes an attempt to identify the main characteristics that affect the consumer satisfaction

and service quality offered by motor insurers. Further in the paper it was found that larger

insurance companies with a direct marketing system and a higher financial rating provide

their customer with a better service and receives fewer complaints.

Govind. Johri. (2009)3: In this paper the author focussed on various factors of customer

satisfaction. He explained the concept of 6 C‘- that is COMMUNICATION,

COOPERATION, CHEERFULNESS, CREDIBILITY, CHALLENGES and

67
CONTINUITY ,on the basis of these the employee/ agent deals the customer. Another

factor that is Customer Relation Manager and Customer Experience Manager, which

improves long term loyalty. Some other factors that are responsible for gaining customer

satisfaction are- Reliability (ability to perform promosed services), Trust (about quality of

product), Assurance (capability of delevering the promise with accuracy), Competence

(knowledge of product), Empathy (courtesy by employees towards customers),

Responsiveness (willingness to provide prompt services) and Tangibility (Appearances of

facilities, personal, communication material etc.).

Sharareh. Mansouri. Jajaee & Fauziah. Binti. Sheikh. Ahmada.(2010)4:The Author

attempts to highlight the importance of quality of service in motor insurance business.

Nowadays, companies are using different marketing strategies in business. Although

other marketing strategies are beneficial, some companies use defensive strategies to

protect current customers. Earlier Researches demonstrate defensive strategies can be

more valuable since they bring higher profit. Different companies will achieve their goal,

when they serve their customers with a high quality service. To maintain a high level of

quality, quality needs to be measured. On the other side, car insurance is one of the

fastest growing types of insurance since it is mandatory in most states in the world. So,

high quality service in insurance industry has become an important concern.

Sharareh. Mansouri. Jajaee & Fauziah. Binti. Sheikh. Ahmada.(2012)5: According to

the author, recently, the number of people who look for car insurance is growing rapidly

since having car insurance contract for drivers and car owners is compulsory in many

areas around the world. Moreover, the high quality service in this specific industry has

become an essential issue for company management bodies because by serving high

service quality and having customer satisfaction, companies are able to make profit.

68
Since these issue play critical role for the insurance companies so, evaluating the

relationship between these features can help the managers to meet customers‘ needs

better than other competitors within the industry. The purpose of this study is to assess

the relation between service quality and customer satisfaction in the Australian car

insurance industry.

Cassar & Blane.(2012)6: This paper aims to analyze the service quality of motor

insurance companies in the Maltese industry, focused specifically on private motor

policies, to continuously strive to differentiate what they offer to better fulfill customer

demands.

Anantha .Raj A. Arokiasamy & Huam .Hon. Tat. (2014)7:In this paper author trying

to assess the relationship between service quality and customer satisfaction in the

Malaysian Automotive Insurance industry. Globalization and open market system have

created the complex competitive environment not only for the manufacturing sector but

also for the service sector. The necessity to own a car coupled with affordable prices

across the globe due to innovative production cost in the automotive industry has surged

in the last two decades. Every car owner is legally bound to have car insurance, be it in

the developed countries or developing countries. By servicing their customer base with

superior and professional service, many insurance companies are able to reap a huge

profit. Satisfying their customer is essential in every service industry and since these

issue plays a critical role for the insurance companies, assessing the relationship between

service quality and customer satisfaction can help managers to meet the needs‘ of

customer better by providing superior service.

J.W.Przybytniowski. (2015)8: In the paper author defined that in the Dynamic

development, companies providing services for potential clients, together with the

69
growing competition, indicates the need for increased actions and practices aimed at the

improvement of the quality of their offered services. The recognition of specific customer

needs and their domination over the competitors in every area of company operations,

assessed in terms of quality, makes the quality perceived not only as an aim, but also as a

whole organization functions. The author aims to identify and analyze the factors (areas)

determining the level of service provision in the business insurance market in the

opinions of customers using the AUTOCASCO (comprehensive car insurance) insurance,

by means of the Servqual method.

2.3.4. Indian Motor Insurance Market

Ravindrarao. (1989)1 :Explained that motor insurance has become the most important

portfolio earning the highest premium income under general insurance business in India.

However, the alarming increase in own damage and third party claims ratio has resulted

in an adverse financial position as far as the underwriting profits under fire and marine

departments by miscellaneous department of which motor insurance has a lion‘s share.

Majority of the vehicle owners belong to the middle and upper class. Under the present

system, variety of policies can be taken for the complete coverage of their personal

effects and health insurances. Moreover no one would prefer to take out number of

policies paying different premiums, they interested in baggage insurance. Since the third

party insurance is compulsory under Motor Vehicle Act, all the owners of motor vehicles

have to take motor insurance policies.

Most of the staff members processing the claims and scrutinising the survey report do not

have any basic technical knowledge on the structure of vehicles, in the absence of which

they blindly believe whatever is stated in the survey report. Therefore all officers and

staff members dealing with motor claims should be given compulsory basic training

70
covering the names of parts, its cost, possibility of various damages, general repairs/

replacements cost etc. So that they are able to keep a vigilant eye on the complete loss

settlement process.

Verma. (2003)2: In this article the author trying to highlight the performance of Indian

market of motor portfolio. According to him with over 55 million vehicles on Indian

roads and a legal requiremrnt for insurance for every vehicle on road, it is easy to mark

why this portfolio plays such a major role in insurance services. The performance of

Indian market in motor-portfolio during the last decade has been anything but

satisfactory.

It generates huge amounts of premium income but it also produces frequent losses that

have now reached new dimensions. It is least attractive market for the new players.

Public-sector companies have experienced continuous trend of payouts and cost far

exceeding the collected premium.

Negative results of this segment are fulled by increased severity of claims, brutal

competition, regulation, increased frequency of law suits,high jury awards, inflation,

increase in auto thefts and improper fraud management that all are contributing

substantially to make the bottom lines red for insurers.Underwiters are scrutinising their

accounts more closely than any other time in recent past to drive their auto insurance

portfolio in right direction towards profitability.

During the soft market, many things happened-underwritering got loosened up and

companies concentrated exclusively on growth with little control on processes and

practices that sensible underwriting losses became a regular feature for the insurers. This

has now started hurting.

71
One thing that is essential in this critical hour is careful underwriting and adoption of

sound business practices. Days are gone when other portfolios subsidised the losses of

this portfolio.

The regulator (IRDA) now keeps watch on business practices of insurers and the cross-

subsidisation in different classes is not permitted as the insurers are required to file class-

wise statement of solvency margin every year. Hike in rates is also not the solution. Even

on demise of the tariff, the competitive forces will not allow insurers to balance their

portfolio in this way. Remedy left, in such a scenario is to learn from the adversities that
the insurers are facing from their own style of business practices and to overhaul their

underwriting and claim practices to set the balance right.

Motor insurance is the biggest and fastest growing general insurance portfolio in the

Indian insurance market and it accounts for more than 42 % of the cash flow of general

insurers.

Author has further defined, various factors which were responsible for low profitability in

the motor insurance segment, these were- cash flow undertwriting, lack of control on

underwriters high acquisition cost and soaring management expenses, growing

automobiles theft due to high repair and replacement schedule, linient attitudes of the

court towards insured, fraudulent claims, inadequate database to enable actuarial

calculations for risk assessment and rating of different groups of vehicles, no scientific

rating (rates are not based on risk exposure). Various control measures like –regular

coodination, meetings quick investigation and prompt determination were also explained

to increase the profitability of motor vehicle insurance in India.

Moody’s.(2008)3: In this article author observed that in 2006-07, the private insurers had

aggressively targeted the more profitable portfolios, namely, fire, enginering, and motor

72
own damage portfolio. The private sector‘s share of third party motor portfolio was much

lower that of the public sector, as the former did not pursue this market because of its

negative underwriting margins. But the scenario has got gradually changed and future

contended to be much brighter.

Agarwal .(2013)4: According to the author motor insurance is the major contributor to

non-life insurers. This is a long-tailed, highly risky amd loss making portfolio. Yet it is

impossible for a general insurer to survive without writing it, as in India.

This class continued its tariff even post-liberalization in 2000. When the market started to

show maturity, the regulator allowed de-tariffing with phased approach starting 2007,

from limited discounts of 10 % to free rates and riders under file and used process.

The market has come along way. Companies have learnt about competing on product

differentiation and service standards. Policyholders have started showing maturity and

are well aware of remedies available in case of any mis-selling or fraud committed by the

insurer. Tariff in residual form remains and is binding. This article examines few

inconsistencies in the provisions. There are instances where companies have been

interpreted differently. It is the right time to take steps for further simplification of

product and removing the residual tariff, making it free in the real sense. No doubt,

policyholders‘ protection and industry‘s solvency must not be compromised.

Further author covered various aspects related to motor insurance like, its classification

and policy formats, general regulations related to motor tariff, deductions, no-claim

bonus, third party section endorsements and warranties.

Ernst & Young .(2013)5: Across Asia‗s emerging markets, motor insurance offers an

exciting opportunity for growth. For several years, the sector has experienced strong and

73
consistent revenue gains, which are forecast to continue. The combined markets of china,

India, South Korea (Korea), Taiwan, Thailand, Vietnam, Malaysia and Indonesia will

generate in excess of US$ 75 billion in gross written motor insurance premiums in 2011.

This paper aims to help prospective entrants assess the best opportunities in this region

and understand how to capitalise on them, looking at the dynamics within the above eight

markets and their potential for growth. While motor insurance in India is the most

popular insurance product sold at banks, some other markets have experienced challenges

in cross-selling insurance products in this way. This paper also examines the main

challenges in each market and their strategies employed by the insurers that are achieving

success in these markets.

2.3.5. Claim Settlement In Motor Insurance

S.M. Jayasudha.(2015)1: According to the author the fast administration of claims are

both a legal obligation of an insurance company and a strong public relations and

marketing strategy. The claim settlement in non-life insurance, thus, has its own

peculiarities and therefore need proper handling. Claims arise when the insured's vehicle

is damaged or any loss incurred, any legal liability is incurred for death of or bodily

injury or damage to the property of a third party caused due to the usage of insured

vehicle. Certain legal formalities are required to be undergone by the insured. These

formalities slightly differ from one company to another. The study analyses the level of

perception of the respondents on claim procedures and settlement procedures followed in

motor insurance.

Maniyammain.N & D.Umamahesherwari. (2015)2: This paper reviews very briefly

some methods for modeling motor insurance and claim frequency.The study explores the

74
motor segment of New India Insurance company limited and its claim from the year

2007-2008 to 2013-2014. According to the author every motor insurance company has to

take care of the customer, making strong customer relation. Motor insurance customers

are aware about the basic coverage of the policy but they are unaware about the claim,

excess and bonus related to policy. Motor insurance and claim sectors would benefit from

less customer regulations.

Kavya Balaji .(2016)3: In motor insurance, insurers are beginning to face lesser heat

from claims in the segment. In FY14, the incurred claims ratio (ICR) for the industry for

motor insurance was 79.5%; this decreased to 77% in FY15. ICR is the ratio of paid

claims to the actual premium collected and is calculated as net claims incurred/net

premium earned. A high ratio doesn‘t bode well for the industry as it means a large part

of the premium collected is going into meeting claims. According to Sanjay Datta: chief-

underwriting, claims and reinsurance, ICICI Lombard General Insurance Co. Ltd. ―ICR

has come down because third-party premiums are increasing every year. But third-party

premiums are still inadequate. Due to this, and increased expense ratio, insurers

continue to make losses on the motor portfolio,‖

2.4 Research Gap

On reviewing literature many important issues got emerged like challenges, Motor Tariff

rates, third party motor insurance, claims, performances, factors of consumers satisfaction

and methods for modelling motor insurance etc. but still many areas have to be

explored.Review of literature highlighted the thought of different scholars on existing

issues but not in wholesome manner. In other words the review of literature has thrown

light on various contemporary issues and has given different existing issues to think of

and to work upon.

75
It was found that limited work in the area of Indian motor insurance industry

related to its problems and prospects with specific to public sector and private

sector was persistently found while carrying the research work. No literature deals

with the study of customer satisfaction towards motor insurance in India. The

present study aims to bridge this gap in literature.

The present study helps in highlighting the existing business potential available in the

Indian motor insurance market and prepare the base for moving them ahead.

Present chapter has identified several kind of issues related to various parameters like the

present motor vehicle insurance system prevailing in the country, its challenges, Indian

motor insurance market, performance review of public and private sector companies in

India and other contemporary issues.

Hence the present research, ‗A Study of Problems & Prospects of Motor Insurance in

India, with special reference to Public and Private Sector Companies‘ is an attempt to

fill up the existing gaps.

2.5 Conclusion

The second chapter related to literature review which covers introduction, need for

reviewing literature , literature background. Under this literature was classified into

various parts like Problems & Issues in Motor Insurance Policy Proceedings, Scope of

Improvements and Benefits, Customer Satisfaction and Service Quality in Motor

Insurance, Indian Motor Insurance Market and Claim Settlement in Motor Insurance

further, last part defines the literature gap.

76
References

Problems & Issues In Motor Insurance Policy Proceedings

1. Agarwal. Rakesh.(1986). An Insight Into Motor Claims. Ankur Foundations

publications.p:17.

2. Srinivasan.S.N. (1990).The Future of Motor Insurance. Journal of Insurance

Institute of India. pp:83-85.

3. Mony.V.S.(2005). New Initiatives In The Insurance Sector: Opportunities And

Challenges.VIKALPA.Vol:30. N:03.p:104.

4. Das.M.K. (2013). Titanic, TP Insurance and Tariff.The Insurance Times. October.

Vol:33. No:10. pp.36,37,41&43.

5. Jawaharlal.U. (2013). Fighting The Evil Forces-Motor Insurance.IRDA Journal.

Vol:11.No:1.January.p:15.

6. Thorpe. Alan:(2013). The ABC... of Motor Insurance .The Journal. P:48

7. Syed Falaknaaz.(2013):Trends and challenges in motor insurance. Financial

Chronicle.India. Retrieved on 02/06/2014 at 10:30 am

http://www.mydigitalfc.com/insurance/trends-and-challenges-motor-insurance-

937

8. Mukadam..Parwat.Aslesha & Deo.Pramod.(2016).Role of Motor Insurance in

Non-Life Insurance – Current Scenario & The Road Ahead.Indian Journal of

Applied Research. India: Vol:06.Issue:04.P:09.

9. http://www.worldwidejournals.com/ijar/file.php?val=April_2016_1461302834__

08.pdf

10. Retrieved on 30/04/2016. At 8 pm

77
Scope of Improvements & Benefits

1. Boyd. G. A.(1962).Road Safety And Insurance In Sweden.Published by-The

chartared insurance institute in collaboration with Mc donald and Evans

limited.pp:74-75.

2. White.S.A. (1966). Motor Insurance For The Man At The Wheel. Great Britain:

Ronald Whiting & Wheaton Ltd publication. Pp:151-152.

3. Lemaire.Jean. (1995). Bonus-Malus Systems In Automobile Insurance. London:

Kluwer Academic Publications. pp:25-26.

4. Rejda.E.George.(2011).Principles of Risk Management and Insurance.Auto

Insurance And Society.Prentice Hall Publication.pp:521, 526 & 540.

5. Aarti. Krishnan. (2015).Motor insurance premiums have fallen 40-60% post-

deregulation.TheHindu.BusinessLine.

6. http://www.thehindubusinessline.com/opinion/columns/aarati-krishnan/motor-

insurance-premiums-have-fallen-4060-postderegulation/article7766577.ece

Retrieved on 08/01/2016 at 6 pm

Customer Satisfaction & Service Quality in Motor Insurance

1. Royne. B. Marla. Thomas. F. Stafford Wells. P. Brenda. (1998). Determinants of

Service Quality and Satisfaction in the Auto Casualty Claims. Journal of Service

Marketing .Research Gate.Vol:12.No:06.p:426.

https://www.researchgate.net/publication/241743441_Determinants_of_Service_

Quality_and_Satisfaction_in_the_Auto_Casualty_Claims_Process

2. Retrieved on 06/02/2010. At 2 pm.

78
3. Kang.B.Han.(1999):An Empirical Analysis of the Service Quality in the

Automobile Insurance: A Log-Linear Model. Journal of Business & Economics

Research. Illinios.Vol:07.No:07.pp:47&50.

file:///C:/Documents%20and%20Settings/Compaq/My%20Documents/Download

s/3933-15725-1-PB%20(1).pdf

4. Retrieved on 01/04/2011. At 1pm.

5. Johri.Govind. (2009). Customer Satisfaction In General Insurance Industry-A

Step Towards Competitiveness.A journal of Risk and Insurance, Pravartak.

Vol:04.Issue :03. pp:1,4,7&8.

6. Jajaee.Mansouri..Sharareh &Ahmada. Sheikh. Binti. Fauziah. (2010). A Study on

the Perceived Service Quality in Australian Car Insurance Industry. p:01

http://www.wbiconpro.com/527-Sharareh.pdf

7. Retrieved on 10/06/2012 at 4:30 pm.

8. Jajaee.Mansouri..Sharareh &Ahmada. Sheikh. Binti. Fauziah. (2012). Evaluating

the Relationship between Service Quality and Customer Satisfaction in the

Australian Car Insurance Industry. IPEDR. Singapore: IACSIT Press.Vol:38.

p:219

http://www.ipedr.com/vol38/044-ICEBI2012-X10010.pdf

9. Retrieved on 30/12/2012 at 3:10 pm.

10. Cassar & Blane.(2012).Service Quality in the Maltese Motor Insurance

Industry.University of Malta.p:01.

https://www.um.edu.mt/library/oar//handle/123456789/6002

11. Retrieved on 1/02/2013 at 6:14 pm.

12. Arokiasamy.A.Raj.Anantha & Tat.Hon.Huam. (2014).Assessing the Relationship

Between Service Quality and Customer Satisfaction in the Malaysian Automotive

79
 Insurance Industry.. Middle-East Journal of Scientific Research .Malaysia: IDOSI

Publications.Vol:20.No:09. p:1023.

http://www.idosi.org/mejsr/mejsr20(9)14/1.pdf

13. Retrieved on 02/12/2014 at 9:10 pm

14. Przybytniowski.W.J. (2015). Quality of Service in Motor Insurance on the

Example of Polish: The Author‘s Own Research. Journal of US-China Public

Administration.Poland:Vol: 12. No: 07.p. 528.

Indian Motor Insurance Market

1. Ravindrarao.K. (1989). Future of Motor Insurance In India. Journal of Insurance

Institute of India. pp:1,7&10.

2. Verma. Vinay.(2003). Building Profitability In Auto Insurance. Journal of

Insurance Institute of India. pp:52-56.

3. Moody‘s ICRA Global Insurance.(2008). Indian General Insurance Industry

Outlook. April.

4. Agarwal.Peeyush. (2013). Motor Insurance In India New Vistas. Asia Insurance

Review. January, pp.58-59

5. E&Y. (2013). Motor Insurance Asia‘s Growth Engine. Ernst & Young Report.

P:3.

Claim Settlement In Motor Insurance

1. Jayasudha.M.S. (2015):Claim and Settlement Procedures in Motor Insurance

Business in Erode District. Internetional Journal of Research in Humanities and

Social Sciences. Vol:02. No:02. p:74.

80
2. http://www.i-scholar.in/index.php/hijrh/article/view/92750

Retrieved on 09/12/2015 at 11 pm

3. N.Maniyammain & Umamahesherwari.D.(2015).A Study of Motor Insurance

and Claims in the New India Assurance Co.Ltd,Karaikal.. International Journal

of Scientific Research.India:Vol:04.Issue:05.pp:1&4.

http://www.worldwidejournals.com/ijsr/file.php?val=May_2015_1431688613__2

72.pdf Retrieved on 01/12/2015 at 1:50 pm.

4. Balaji. Kavya. (2016) Insurance claim settlements see increase. Live Mint .E-

Paper http://www.livemint.com/Money/6eBc9mtLW2Sx9LLdczkGJP/Insurance-

claim-settlements- see-increase.html

Retrieved on 30/03/2016 at 7:26 pm.

81
 CHAPTER– 3

PROBLEMS OF MOTOR INSURANCE IN INDIA

From reviewing literatures various problems related to Indian motor insurance was

revealed, that negative results of this segment are fulled by increased severity of claims,

brutal competition, regulation, increased frequency of law suits, high jury awards,

inflation, increase in auto thefts and improper fraud management that all are contributing

substantially to make the bottom lines red for motor insurance companies.

3.1. Problems Related To Motor Insurance Companies

 Motor tariff rates -The problem of motor vehicle insurance companies are that

they were facing continuously adverse claim experience through its statutory legal

liability section. A large amount of motor vehicle insurance was taken but

commercial vehicles owners have heavy incidence of claims for several years.

The commercial motor vehicles owners were not in the favour of increasing motor

tariff rate and most of the times they oppose this through stikes. Several measures

were taken by various committee to solve the issue related to motor tariff rate but

nothing yet to be done.1

 Invalid motor insurance- The another challenge that motor insurance sector

facing is invalid motor insurance. Several vehicles that ply on Indian roads do not

carry a valid insurance (reasonable estimates put it anywhere around 40 % of

them) is one that needs to be taken seriously and tackled at the right places. This

alone could be a major factor for the Motor portfolio to bleed year after year. 2

82
 Changing customer needs and preferences- In this scenario non-life insurance

companies are witnessing changing customer needs and preferences in motor

insurance policies, which is their largest business segment. Now customers no

longer want plain vanilla insurance policies that just cover their car, truck or two-

wheeler, but are increasingly asking for service based insurance coverage and

insurance companies are lacking in fullfilling this requirement. 3

 Underinsurance- According to estimates, around 40 per cent cars and 70 per cent

two wheelers are underinsured. The traditional distribution channels have failed to

spread the insurance beyond a point. Since the premium of an insurance policy for

a two-wheeler is less than Rs 1,000, agents do not consider it a lucrative business

due to lower commissions.4

 Limited data for pricing-The other challenge faced by insurers is that there is

not enough data to help them in pricing a risk. According to a report published in

2012 by the Road Transport Authority, the driver‘s fault account for a whopping

77.5 % of the total road accidents. Yet the pricing is based more on the year of

manufacture of the vehicle, engine capacity, price and the zone in which the

vehicle is bought and less on the age, occupation and credit score of the driver and

usage of the vehicle.5

 Lack of awareness- In today‗s world the problem faced by motor insurance

business markets is not a shortage of goods (insurance products) but a shortage of

customers.This arises due to lack of awareness and understanding on the

customerʻs side. Insurance is ―PEOPLE‘S BUSINESS‖. Insurers are dealing with

people who are their policyholders, claimants, intermediaries, beneficiaries and

83
 even employees. Insurance is sold and seldom brought. Insurance selling is

complex & difficult. Motor insurance customers are aware about the basic

coverage of the policy but they are unaware about the claim, excess and bonus

related to policy.6

 Negligent motorists- In India many cases are there where innocent persons who

are injured in auto accidents are unable to recover financial damages from the

negligent motorists who injured them. Although accident victims may have bodily

injuries or suffer property damage, they may recover nothing or receive less than

full indemnification.7

 Immature surveyors and loss assessors- Motor accident claims are the most

common amongst different types of claims, arriving out of various policies; but

unfortunately, they are being handled by immature surveyors and loss assessors.

These motor claims are receiving the least attention of the industry, and as a result

everybody is facing a lot of problems while processing such claims. Probably, it is

the only subject, out of many branches of the general insurance industry which

does not have any guideline whatsoever.8

 Lack of basic technical knowledge- Most of the staff members processing the

claims and scrutinising the survey report do not have any basic technical

knowledge on the structure of vehicles, in the absence of which they blindly

believe whatever is stated in the survey report. 9

 Excessive cost and payouts- Excessive cost and continuous payouts trends are

the factor that creates problem for Indian public sector motor insurance

companies.Their cost exceeds their collected premium. 10

84
 Low profitability-Another challenge is low profitability in the motor insurance

segment. Factors which were responsible for low profitability were-

 Cash flow undertwriting,

 Lack of control on underwriters high acquisition cost and soaring management

expenses,

 Growing automobiles theft due to high repair and replacement schedule

 linient attitudes of the court towards insured

 Fraudulent claims

 Inadequate database to enable actuarial calculations for risk assessment and

rating of different groups of vehicles,

 No scientific rating (rates are not based on risk exposure).

 Unethical Practice- In India it was seen that sometimes motor insurance

policyholders adopting fraudulent practices by making fake accidents claims for

earning profit out of it, which is illegal in Indian Law and that is the major problem

of Indian motor industry.

 Excessive Dependence on surveyors- Another problem under motor insurance

industry is too much of dependence on independent surveyors. The reason behind is

lack of technical knowledge of the staff.

 Independent assessor- In Indian motor insurance industry an independent assessor

charges higher amount of remuneration for their service which is a costlier affair for

the company and a problem for the motor insurance industry. Because their expenses

are more as compared to premium collection.

85
 Improper time management-In most of the cases the assessor reach the place of

accident too late to asses the quantum of damages and sometimes they do not

reach the places of accident in remote area.

 Coverage- The another challenge infront of motor insurance companies is

coverage, here coverage means coverage of insurance in a territory.nSeveral

vehicles ply on special permits to cover large territory. Five state composite

permit,seven state national permit, zonal permit etc. enable the vehicles to cover

very long distances. This type of change in operation makes control of operation a

difficult task and this introduces a new dimension of risk. Contract carriage

operating under All India permit also form a different class of risk since the

operation takes the vehicles to far off places where the insured cannot exercise

proper control.11

 Change in psychology of the operators- The tendency of the insureds is to

obtain the maximum benefit when a claim occurs.They try to cover up various

kinds of losses they suffer when an accident occurs. The motor policies

indemnifies against loss or damage suffered on account of accidents caused by

stated contingencies: but the amount payable as claim is circumscribed by

limitations, exclusions and policy conditions.12

 Renewal- The real problem is the renewal of the policies from the second year

onwards when the vehicle owner fails to take it seriously. Even among those that

go to renew their policies, there is a high incidence of opting only for the

mandated third party liability, thereby defeating the very objective of insurance.

Reasons for not renewing are ignorance, carelessness, high premium amount and

busy time schedule.13

86
  Breach of Utmost good faith- The doctrine of utmost good faith imposes a legal

obligation on the proposer to disclose all material facts in the proposal form; the

material vehicular details- type, year of manufacture,make, engine number and

capacity,chassis number theft proneness of vehicle,etc.; the geographical area of

use; the driving history like driver‘s age, qualification, physical conditions, traffic

conviction, past loss experience, etc. In many cases policyholders breach this

principle by misrepresents / suppresses facts in that case the insurer may be

placed under an unfavorable position where approriate rates may not be applied.

3.2. Problems Related To Motor Insurance Customers

 Terms and conditions- In many cases policyholders are not very clear or do not

have proper informations about their motor insurance policy terms and conditions.

The reason behind it was complicated / confused policy wordings, especially to

the policyholders belonging to the rural area due to illeteracy, unfamilier with

english language etc.

 Lenthy Process-In Indian motor insurance industry the problem that customers

are facing in relation to claim settlement is lengthy process due to legal

formalities, mismanagement of the company and inefficient staff specially in

public sector.

 High premium charges- Another challenge that policyholders are facing in this

time are higher premium charged by the insurance companies. Customer think

that they are paying more premium in comparison to the sum assured amount.

 Term- Most of the customers wanted long term motor insurance policy rather

taking one year policy specially in public sector motor insurances companies.

87
3.3. Conclusion

Third chapter of the thesis focussed on various problems associated to motor insurance

and for that problems were divided into two parts first part defines problems from motor

insurance company side and the second part defines the problems from customers side.

88
References

1. Mony.V.S.(2005). New Initiatives In The Insurance Sector: Opportunities And

Challenges.VIKALPA.Vol:30. N:03.p:104.

2. Jawaharlal.U. (2013). Fighting The Evil Forces-Motor Insurance.IRDA Journal.

Vol:11.No:1.January.p:15.

3. Syed Falaknaaz.(2013):Trends and challenges in motor insurance. Financial

Chronicle.India. http://www.mydigitalfc.com/insurance/trends-and-challenges-

motor-insurance-937 Retrieved on 02/06/2014 at 10:30 am

4. Ibid.s.no:3

5. Ibid.s.no:3

6. Mukadam.Parwat.Aslesha & Deo.Pramod.(2016).Role of Motor Insurance in Non-

Life Insurance – Current Scenario & The Road Ahead.Indian Journal of

AppliedResearch.India:Vol:06.Issue:04.P:09

http://www.worldwidejournals.com/ijar/file.php?val=April_2016_1461302834__08

.pdf Retrieved on 30/04/2016. At 8: pm.

7. Rejda.E.George.(2011).Principles of Risk Management and Insurance.Auto

Insurance And Society.Prentice Hall Publication.pp:521, 526 & 540.

8. Agarwal. Rakesh.(1986). An Insight Into Motor Claims. Ankur Foundations

publications.p:17.

9. Ravindrarao.K. (1989). Future of Motor Insurance In India. Journal of Insurance

Institute of India. pp: 1 ,7&10.

89
10. Verma. Vinay.(2003). Building Profitability In Auto Insurance. Journal of

Insurance Institute of India. pp: 52-56.

11. Srinivasan.S.N. (1990).The Future of Motor Insurance. Journal of Insurance

Institute of India. pp:83-85.

12. Ibid.s.no:13

13. Ibid.s.no:2

90