General insurers have emphasised the need to increase customer awareness as the Insurance Regulatory and Development Authority of India (Irdai) prepares to introduce a four-layer motor insurance framework from December 15, 2026. Insurers said the new motor insurance framework would offer policyholders greater flexibility in selecting coverage but cautioned that inadequate awareness could prompt customers to drop optional covers to reduce premiums, potentially leaving them without essential protection.

Key Highlights

• Irdai’s four-layer motor insurance framework takes effect on December 15, 2026, introducing separate coverage options.

• Insurers stress customer awareness to prevent policyholders from dropping essential optional covers to reduce premiums.

Shanai Ghosh, MD and CEO of Zuno General Insurance, said the motor insurance framework would create opportunities for insurers to provide broader and more relevant coverage while allowing customers to choose the protection they need. She highlighted the importance of educating policyholders and communicating the implications of the new structure clearly.

Irdai’s Four-Layer Motor Insurance Framework Explained

Under the new framework, insurers will be required to offer four separate covers:

• Third-party liability

• Legal liability to occupants

• Personal accident cover

• Own-damage cover

Customers will have to indicate their coverage preferences through a mandatory option form. According to insurers, the initial impact of the framework will primarily involve operational changes, including modifications to product design, digital platforms and distribution systems.

However, the longer-term implications for premiums and insurer profitability will depend on how customers respond to the different coverage options.

Insurers Flag Risk of Customers Opting Out of Optional Covers

While the separate identification of covers is expected to improve transparency, insurers have raised concerns that customers may choose to discontinue optional protection to save on premiums without understanding the risks.

A Kiran Kumar, Head – Motor Underwriting at Tata AIG General Insurance, described the framework as a positive step towards greater transparency and clarity. However, he stressed that insurers, distributors and industry bodies must strengthen customer awareness initiatives and explain the benefits of each cover.

He said informed decision-making would be essential to ensure that policyholders do not compromise on necessary protection simply to reduce their insurance costs.

Customer Information Sheet and Policy Disclosure Requirements

The Irdai circular also requires insurers to provide a Customer Information Sheet (CIS) at the point of sale. Policy schedules must separately disclose the coverage offered and the premium charged under each section.

These requirements are intended to help customers understand the components of their motor insurance policies and make more informed coverage decisions.

Existing policyholders will also be permitted to add legal liability cover for occupants or pillion riders during the policy period by paying an additional premium. However, the facility will be available only through the insurer that issued the third-party policy.

The additional protection will become effective from the date and time specified in the endorsement. Policyholders will not have to cancel their existing third-party policy to add the cover.

Insurers Retain Flexibility in Own-Damage Pricing

Although Irdai has prescribed uniform policy wordings, insurers will retain the flexibility to introduce innovative coverage options and determine own-damage policy pricing according to market conditions.

Insurers can also modify general exclusions and policy conditions based on the coverage selected by customers, provided the basic protection under the four-layer framework is not restricted.

The new structure and standard policy wordings will apply to all motor insurance policies issued from December 15, 2026. Insurers have also been directed to complete their integration with Bima Sugam by the same date to ensure that the policies are available on the platform when the framework comes into effect.

Also Read: IRDAI Plans Major Insurance Distribution Reforms to Protect Customers

Motor Insurance Premium Impact to Depend on Customer Adoption

Kiran Kumar said the immediate impact on insurers would largely be structural, with changes required across product design, digital platforms and distribution systems within the stipulated 45-day timeline.

He added that regulated components would see limited pricing changes, while greater flexibility in own-damage pricing could intensify competition in the segment.

Insurers do not expect a significant short-term impact on overall insurance premiums. The longer-term effect on pricing will depend on customer adoption of the different covers and forthcoming regulatory guidelines.

As the December 15 implementation date approaches, customer education and transparent communication are expected to play an important role in ensuring that greater flexibility does not result in gaps in motor insurance protection.