Last month, the Times of India and the Economic Times reported that authorities were planning to link unpaid challans on a vehicle to higher premiums paid for the vehicle’s insurance. Reportedly, if an individual carries forward more than 2 unpaid or pending challans from the previous financial year, they might be pushed to pay higher premiums towards their vehicle’s insurance policy next year. Similarly, if they rack up more than 3 traffic violations, like driving on a footpath or driving vehicles that are over 10 years old (in the case of petrol) or 15 years old (in the case of diesel) or more in a single year, their license could be confiscated for a minimum of 3 months. The consequence could also include cancellation of the vehicle’s registration till the fine imposed is done away with.
Moreover, if there is no action by the person on the challan within 30 days of its generation, it would automatically be considered an admission of guilt on the part of the vehicle’s owner.
The new financial year has kickstarted this month, and people are wondering whether they will have to pay higher motor insurance premiums this time around if they have more than 2 pending, unpaid challans from the previous financial year.
Will all these rules be actively enforced starting this financial year? We talk to experts and decode the matter.
Currently in draft stage; no timeline on implementation
Alay Razvi, Managing Partner, Accord Juris, says, “The present proposal has not been implemented yet, and it still is in the draft stage. Tracking challan status post-policy issuance poses practical and systemic challenges. As such, it would require a secure and continuous data-sharing mechanism between the Ministry of Road Transport, the State Traffic Dept., and motor vehicle insurers.” According to him, implementing this would not be easy since this would require multiple privacy and compliance concerns to be addressed under the Digital Personal Data Protection Act (DPDP).Sonal Alagh, Partner, Alagh & Kapoor Law Offices, concurs, noting that the proposed rule to suspend driving licenses for non-payment of traffic e-challans within three months has not yet been fully implemented.
However, multiple experts say that the integration of e-challan systems with insurance premiums is under phased implementation in multiple states in India. States like Delhi are even piloting real-time data-sharing between traffic police and insurers via centralized platforms (e.g., PARIVAHAN PORTAL)
How will insurers determine the premium payable in light of challans issued?
Soayib Qureshi, Partner, PSL Advocates & Solicitors, says, “Proposed rules suggest a tiered premium model, where 2 pending challans in a financial year trigger a 10-20% premium hike.”
Others, like Alagh, expect that insurance companies might employ a point-based system wherein each valid, uncontested challan contributes to a score that determines the premium rate.
However, experts anticipate that the premium pricing will largely be done via a telematics-based pricing mechanism. Insurers may use traffic violation history (e.g., more than two pending challans) as a metric to calculate risk-based premiums.
Notably, telematics-based insurance, also known more commonly as usage-based or pay-as-you-drive insurance, lets policyholders pay premiums in proportion to the amount of time they drive the vehicle. With a policy term of one year, insurers measure the distance covered by your car, either by the vehicle’s odometer reading or via an app that the policyholder has to install specifically for this. It is also available as a kilometer benefit add-on cover with your existing motor insurance policy.
Since it so comprehensively analyses the driver’s behaviour and usage patterns, insurance companies generally reward drivers perceived as safe with lower premiums payable, while risky drivers might be subject to higher premiums.
How will erroneously generated challans be dealt with?
The plan to implement such a punitive measure against vehicle owners is not without practical challenges. Many times, challans are erroneously or wrongly generated, prompting drivers to contest them in Lok Adalats or virtual courts. However, if such challans are linked to premium calculations, it could potentially inflate the premium payable, even when the policyholder is not at fault.
A solution for this could be offered to vehicle owners. “The policyholder will have to dispute and resolve the challan before the policy term begins or during renewal. And in the event the issue subsists or is not resolved timely, there’s a risk of unjustified premium hike,” notes Razvi.
“In case the proposal for enhancement in insurance premium happens on account of multiple pending challans, premium calculations would likely be adjusted once the errors are rectified, but the exact method for handling this remains unclear. It might involve providing evidence of wrong charges or submitting appeals to authorities to correct the record before insurance premiums are finalized. This should become clear if and when the amended provisions are enforced,” says Rahul Sundaram, Partner, IndiaLaw LLP
Qureshi recommends that insurers provisionally calculate premiums, withholding hikes until resolution. “Post-verification, invalid challans trigger refunds. Regulators (e.g., IRDAI) should mandate transparent dispute mechanisms, requiring insurers to validate challan legitimacy before finalizing premiums, ensuring fairness,” he adds.
