Did you know about the knock-for-knock agreement in motor insurance
Did you know about the knock-for-knock agreement in motor insurance 28th November 2022
In India, awareness about motor insurance has grown significantly in the last few years. The number of insurance policyholders is slowly but steadily increasing. The increasing means of living and demand for luxury goods to improve convenience are anticipated to keep driving the market for motor insurance. Comprehensive motor insurance consisting of own damages and third-party covers is expected to grow more in the coming future.
Third-party liability insurance is mandatory to protect the driver against legal and accidental liability, financial loss or property damage, and medical expenses he may face after an accident. Despite its advantages, settling claims is a lengthy and costly procedure. The knock-for-knock agreement is a recently introduced aspect of motor insurance to simplify the process and increase the policyholder base and satisfaction.
This blog discusses all you need to know about the knock-for-knock agreement.
The issue before the knock-for-knock agreement:
When an accident happens, the persons involved can contact their insurance companies to compensate the other party for damages. However, this is a lengthy procedure that may sometimes take months to settle with unfavourable conditions. It is also still being determined whether or not the insurer will accept the claim.
In the background of such uncertainties, the affected party has no choice but to file a suit in court, which takes additional time and cost. The knock-for-knock agreement aims to eliminate this waiting period by providing an alternate solution to settle the claim among the parties without the court's involvement.
An alternative approach using a knock-for-knock agreement:
The knock-for-knock agreement is signed by two or more motor insurance companies insuring two or more parties involved in a motor accident. Since these companies are aware of the tedious claim settlement process, they use this alternative agreement and promise to bear the expenses for repairs or damages to their client instead of claiming the amount from the other party. Introduced in 2001 by the General Insurance Council, a motor insurance company doesn't need to sign such an agreement to make the claim process quick.
Advantages of knock-for-knock agreement:
While the concept is simple to understand, here is the summary of the benefits of signing a knock-for-knock agreement:
● Speedy settlement of claims
● Eliminates the need for the involvement of law
● Reduces the expenses required to be borne in case of proving the liability of the third party to derive a settlement from his insurer
Conditions for knock-for-knock agreement:
Three primary conditions are applicable for claims that are admissible under a knock-for-knock agreement.
1. Accidents must occur within geographical boundaries:
The insurance company decides such boundaries before the lodging of the claim. Generally, the limit is considered to be the defined geographical boundaries of India. It is implied that any accident outside the border cannot be admitted as a claim under a knock-for-knock agreement.
2. The claim must be filed as own damages:
Under the agreement, each motor insurance company agrees to compensate its client instead of demanding compensation from the other party. This claim can no longer be filed as third-party damages and is processed as "own damage". Therefore, you must purchase your "own damages" cover, without which you cannot complete this procedure.
3. Limit on the claim amount:
The admissible claim cannot exceed the insured declared value (IDV) previously mentioned in the policy.
The knock-for-knock agreement is a lesser-known aspect of motor insurance that makes claim settlements speedy and inexpensive. It saves the resources of a motor insurance company that agrees to such a contract. Explore this aspect to know more about its seamless benefits before buying motor insurance in India.
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Disclaimer: The information provided above is for illustrative purposes only. To get more details, please refer to policy wordings and prospectus before purchasing a policy.