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Thursday, 02 November 2017 06:23
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Saikat edit

SC has done well by the self-employed killed in accident but the industry’s problems also need to be addressed


Given how, apart from the emotional loss, the death of an earning member in a road accident often plays havoc with household finances, the Supreme Court has done well to mandate rules for compensation for the self-employed who die in accidents and bring them on a par with those with fixed incomes. Right now, based on a complex formula, if a 33-year-old with an annual income of Rs 40,000 dies in an accident, his family gets a two-part compensation. The first, based on income and age, works out to Rs 6.4 lakh. The second deals with the future income, and the formula there is 50% of the last salary into the number of years of active service. So, that works out to Rs 6.4 lakh plus (25 years x 20,000) or Rs 11.4 lakh. In 2008, the Supreme Court tweaked this a bit for those older than 40 years, to lower the compensation for future income. All through, however, there was no provision of future income for the self-employed—so, in our example, if the person was self-employed, his family would get just Rs 6.4 lakh.

The Supreme Court has now mandated the same rules, so the family will get Rs 11.4 lakh. While this is good for accident victims, there is no set formula for anyone earning over Rs 40,000 a year—that is decided by the courts, and cases drag on for around eight years on average. For insurance firms, the claims ratio has risen from a high 77% in FY15 to 82% in FY16, making the business quite unviable. Fixing this means the insurance regulator will have to be more realistic about the cap it puts on premiums for third-party insurance; the unlimited liability on third-party deaths probably also needs to go and replaced by a reasonable sum.

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