Last Updated:
Many have suggested that linking insurance to FASTag and other digital services can enable better compliance and boost insurance coverage nationwide
Only 50% of the estimated 35–40 crore vehicles on Indian roads in 2024 have third-party insurance. (Representative/Shutterstock)
The Union Finance Ministry has asked the Ministry of Road Transport and Highways to consider several measures to promote third-party insurance. These measures include preventing vehicles without insurance from refuelling or accessing fastag lanes. Additionally, it has also been suggested that the driving licences of uninsured vehicle owners may not be renewed.
Under the Motor Vehicles Act, 1988, third-party insurance is mandatory for all vehicles. This insurance provides compensation for damage caused to a third party in an accident. Despite this legal requirement, more than half of the vehicles on Indian roads are operating without insurance.
According to an official, the ministry is developing proposals that may soon change vehicle service regulations. These proposals aim to link vehicle-related services with insurance coverage. Additionally, state governments and union territories will receive instructions to ensure strict compliance with the new regulations.
The Parliamentary Standing Committee recently submitted recommendations to the government regarding the enhancement of third-party insurance coverage. The committee strongly advocated for the promotion of data integration and e-challans, alongside the necessity for data reporting to individual states. This measure aims to facilitate comprehensive monitoring of both vehicle registration and insurance coverage.
According to the Insurance Regulatory and Development Authority of India (IRDAI), only 50% of the estimated 35–40 crore vehicles on Indian roads in 2024 have third-party insurance. Under the Motor Vehicles Act, driving without third-party insurance is an offence. A first-time offender can be fined Rs 2,000 or jailed for three months, or both. The fine can increase to Rs 4,000 for a second offence.
Rajat Mahajan, partner and automotive sector leader at Deloitte, said the use of FASTag and digital platforms will help increase insurance compliance. FASTag transactions reached Rs 6,642 crore in December 2024.
Linking insurance verification to FASTag and other digital services can streamline the process, making it simpler and more effective. This integration has the potential to increase insurance coverage across the country while simultaneously improving data collection and analysis capabilities.
Consequently, the government and insurance companies would be better equipped to identify regions with low coverage and formulate targeted strategies to address the issue. Mahajan highlighted that increased insurance coverage would broaden the risk pool, ultimately leading to more competitive premiums and enhanced benefits for policyholders.
Haroon Asrar, a partner at Solomon & Co, suggested that linking third-party insurance, FASTag, and pollution certificates to Aadhaar could enhance the efficacy of the integrated system. This integration would enable vehicle owners to manage all services through a single platform.
