The Insurance Regulatory and Development Authority of India (IRDAI) has announced the implementation of a new four-layer motor insurance framework, a move designed to align industry practices with a recent Supreme Court directive. The new system, which becomes mandatory for all private cars and two-wheelers starting December 15, 2026, aims to provide greater clarity and transparency regarding the various components of motor insurance policies.
This restructuring follows the Supreme Court’s order in the case of National Insurance Company vs Thungala Dhana Laxmi. The court had directed the regulator to collaborate with the General Insurance Council and insurance companies to create a tiered structure that allows vehicle owners to make more informed choices when purchasing coverage. The central objective is to help customers clearly distinguish between what they are buying and what they are not, while also providing transparency regarding the cost of each individual component.
Under the new four-layer framework, third-party liability coverage remains mandatory for vehicle owners. Similarly, personal accident cover for the owner-insured continues to be a compulsory requirement. In contrast, other components—such as legal liability for occupants, pillion riders, and drivers other than the owner, as well as own-damage cover—are classified as optional. This tiered approach is intended to ensure that the cost of each specific cover is disclosed separately, reducing ambiguity regarding insured risks.
To achieve uniformity across the industry, the IRDAI has prescribed standard policy wordings. General insurers are now required to adopt these standard terms and must obtain a completed customer option form for every policy issued. This form, which records the specific covers chosen by the policyholder, will become an integral part of the insurance contract. Furthermore, insurers must issue a Customer Information Sheet at the point of sale, accessible through both online and offline channels.
A significant feature of this framework is the provision for existing third-party policyholders to extend their coverage. Policyholders can now add legal liability cover for occupants during the term of their existing policy by paying an additional premium. This must be processed by the insurer that issued the primary policy, with the added risk commencing from the date and time specified in the formal endorsement. Customers are not required to cancel their current policies to avail of this additional protection.
While the IRDAI has standardised the basic structure and policy language, it has maintained flexibility in other areas. Insurers retain the freedom to determine the pricing of own-damage covers based on prevailing market conditions and are encouraged to continue innovating their product offerings. Furthermore, firms may continue to adjust general exclusions and conditions based on the specific cover selected, provided these modifications do not restrict the essential coverage stipulated by the four-layer structure.
As part of the rollout, the IRDAI has mandated that insurers integrate this new framework with the Bima Sugam digital marketplace by December 15, 2026. This ensures that the newly structured policies are readily available on the platform from the date of implementation. By requiring a documented record of customer choices and clear premium disclosures, the regulator expects the move to foster greater trust and accountability within the motor insurance sector.
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