Motor Vehicles Act and insurance

What is the Motor Vehicles Act and how does it affect insurance?

The Motor Vehicles Act, 1988 is the central law governing vehicles on Indian roads. For insurance, its key part is the chapter on insurance against third party risks, which makes it an offence to use a motor vehicle in a public place without a policy covering the owner's liability for death, injury or property damage to others. The Act also sets up Motor Accidents Claims Tribunals (MACTs), fixes no-fault compensation, and decides when an insurer can avoid paying.

The Motor Vehicles (Amendment) Act, 2019 rewrote the insurance chapter. Its provisions on insurance and accident claims came into force on 1 April 2022, through a notification by the Ministry of Road Transport and Highways (MoRTH).

Key insurance provisions of the Motor Vehicles Act

The 2019 amendment also removed the old structured formula for no-fault compensation (the Second Schedule) and the earlier section 163A route.

Recent changes, 2022 to 2026

• Third party premiums. Base premiums are set by the Motor Vehicles (Third Party Insurance Base Premium and Liability) Rules, 2022, effective 1 June 2022 and amended in January 2024. A revision has been under discussion between MoRTH and IRDAI since 2025; confirm the current notification before quoting.
• Cashless treatment for road accident victims. Under section 162, MoRTH notified the Cashless Treatment of Road Accident Victims Scheme, 2025 on 5 May 2025. A victim of a road accident involving a motor vehicle can get cashless treatment of up to ₹1.5 lakh per person per accident, for up to seven days from the accident, at designated hospitals. The National Health Authority implements it, and hospital claims are paid from the Motor Vehicle Accident Fund, which general insurers help fund.
• Tax on MACT interest. Budget 2026 proposed exempting interest awarded by a MACT on accident compensation from income tax for individuals and their legal heirs, and removing tax deduction at source on such interest, from tax year 2026-27 under the Income-tax Act, 2025.

What the Motor Vehicles Act means for distribution

• Compliance creates the market. Every vehicle needs third party cover, so the Act creates a large base of mandatory buyers. Enforcement through traffic cameras, e-challans and checks against the national vehicle database pushes lapsed owners back to insurers. Distributors who are present at the point of a fine or a pollution check, or offer easy renewal links, pick up these customers.
• Unlimited liability shapes the product. Because the insurer must pay whatever the tribunal awards for death or injury, third party claims run for years and awards rise with incomes and court rulings. This is why insurers and IRDAI keep pressing for premium revisions, and why third party pricing is outside a distributor's control.
• The six-month limit changes claim support. Accident victims and families now have six months to file a claim petition. Agents and claims teams who help a customer's family understand the routes (MACT claim, section 164 no-fault payment, hit-and-run scheme, CPA claim under the owner's own policy) add real value at a hard time.
• Insurer defences matter to the seller. Non-payment of premium and breach of policy conditions (for example an unlicensed driver or a private vehicle used commercially) can let the insurer recover from the owner what it paid a victim. Accurate declarations at the sale protect the customer from that recovery.
• Commercial vehicle fleets. Fleet owners and transport operators face the largest third party exposure. Brokers serving them should track MACT trends and the cashless treatment scheme, since both affect claim frequency and cost.