Banking and Insurance - Laws and Practice · General and Health Insurance

Motor Insurance and Third Party Risks under Section 32D

Updated 11 October 2026 · Fact-checked

Section 32D of the Insurance Act, 1938 requires every insurer carrying on general insurance business to underwrite a minimum percentage of third party motor business, as set by regulations. The Authority may exempt insurers mainly in health, re-insurance, agriculture or export credit guarantee. Answer by stating the rule, applying it to the insurer, and concluding.

Understand Motor Insurance and Third Party Risks (Section 32D)

A motor insurance policy protects the owner of a vehicle against financial loss. It has two broad parts. The first covers damage to your own vehicle. The second covers your legal liability to third parties, that is, people injured or property damaged by your vehicle who are not parties to the contract.

Third party cover matters to society, not only to the owner. If an accident victim cannot recover compensation because the owner has no money, the loss falls on the victim. Motor third party risk is also often loss-making for insurers, so insurers may be tempted to avoid it and write only profitable business.

Section 32D addresses this. Every insurer carrying on general insurance business must underwrite such minimum percentage of insurance business in third party risks of motor vehicles as the regulations specify. The obligation applies after the commencement of the Insurance Laws (Amendment) Act, 2015. The section was inserted with effect from 26 December 2014.

There is an exemption. The Authority may, by regulations, exempt an insurer that is primarily engaged in the business of health, re-insurance, agriculture or export credit guarantee. So the exemption is not automatic. It depends on regulations and on the insurer's primary business.

In practice, the two common motor products are the act only (liability only) policy, which covers third party liability, and the comprehensive (package) policy, which covers third party liability plus damage to your own vehicle. The legal obligation of the insurer under section 32D concerns third party risks, so keep the two ideas separate in your answer.

Key rules to remember

Core rule of section 32D: Every general insurer must underwrite a minimum % of motor third party business, as specified by regulations; The percentage is not fixed in the section. It is left to regulations. Do not quote a figure.
Exemption proviso: Authority may, by regulations, exempt an insurer primarily engaged in health, re-insurance, agriculture or export credit guarantee; Only these four areas are named. The power is exercised by regulations.
Who is bound: Insurer carrying on general insurance business; Life insurers are not covered by this section.
Time reference: Obligation applies after commencement of the Insurance Laws (Amendment) Act, 2015 (5 of 2015); Section inserted w.e.f. 26-12-2014.
Policy types: Act only = third party liability; Comprehensive = third party liability + own damage; Section 32D concerns third party risks.

How to solve Motor Insurance and Third Party Risks (Section 32D) questions

Use this method for any question on section 32D or motor third party cover.

1Identify the insurer's business. Check whether it carries on general insurance business.
2State the rule: a minimum percentage of motor third party business must be underwritten as specified by regulations.
3Check the facts for the exemption: is the insurer primarily in health, re-insurance, agriculture or export credit guarantee?
4Remember the exemption needs regulations of the Authority. Say so, and do not assume it applies automatically.
5Separate third party liability from own damage cover if the question compares policies.
6Apply the rule to the facts and give a clear conclusion.
7Add a practical point such as underwriting plan, portfolio monitoring or compliance reporting.

Quickest way: Three-check approach

When to use it: Use when time is short and the question asks whether an insurer must write motor third party business.

Check 1: Is it a general insurer? If no, section 32D does not apply.
Check 2: Is it primarily health, re-insurance, agriculture or export credit guarantee, and exempted by regulations? If yes, exempt.
Check 3: Otherwise it must meet the minimum percentage set by regulations. Conclude in one line.

Common mistakes in Motor Insurance and Third Party Risks (Section 32D)

Quoting a fixed percentage as the section 32D requirement
Students memorise figures from news or notes.
Fix: Write that the percentage is as specified by regulations. The section itself gives no number.
Applying section 32D to life insurers
Students forget the section speaks of general insurance business.
Fix: Begin every answer by confirming the insurer carries on general insurance business.
Treating the exemption as automatic for health or agriculture insurers
Students read the proviso loosely.
Fix: State that the Authority may exempt by regulations. Exemption depends on that power being exercised.
Mixing own damage cover with third party risk
Comprehensive policies bundle both covers.
Fix: Section 32D concerns third party risks only. Mention own damage only when comparing policies.
Adding exempt categories not in the text, such as life insurance
Students guess the list.
Fix: Learn the four: health, re-insurance, agriculture, export credit guarantee.

Worked examples

Example 1

Surya General Insurance Ltd, a general insurer writing fire, marine and motor business, wishes to stop underwriting motor third party risks because the portfolio is unprofitable. Advise.

Show the solution

Surya carries on general insurance business, so section 32D applies.
The section requires every such insurer to underwrite a minimum percentage of motor third party business as specified by regulations.
The only relief is the proviso exemption for insurers primarily engaged in health, re-insurance, agriculture or export credit guarantee. Surya writes fire, marine and motor, so it is not primarily in these areas.
Unprofitability is not a ground of exemption in the text.

Answer: Surya cannot stop. It must underwrite at least the minimum percentage of motor third party business specified by regulations.

Example 2

Explain the difference between an act only policy and a comprehensive motor policy, and state the insurer's duty under section 32D.

Show the solution

An act only policy covers the owner's legal liability to third parties.
A comprehensive policy covers that liability and also damage to the insured's own vehicle.
Section 32D is about third party risks. It requires general insurers to underwrite a minimum percentage of such business, as specified by regulations.
The Authority may exempt insurers primarily in health, re-insurance, agriculture or export credit guarantee, by regulations.

Answer: Act only covers third party liability. Comprehensive adds own damage cover. Under section 32D, every general insurer must meet the regulation-specified minimum of motor third party business, subject to exemption by regulations.

Exam tips

Quote the section wording closely: minimum percentage, third party risks, as specified by regulations.
Never state a percentage figure unless the question supplies it.
In case questions, check the insurer's type and primary business before concluding.
Name the exemption categories exactly: health, re-insurance, agriculture, export credit guarantee.
Add one practical compliance point to show application.

Practice questions from General and Health Insurance

Motor Insurance and Third Party Risks (Section 32D): frequently asked questions

What does section 32D of the Insurance Act, 1938 say?

It requires every general insurer to underwrite a minimum percentage of motor third party risk business as specified by regulations. The Authority may exempt certain specialised insurers by regulations.

Which insurers can be exempted from section 32D?

Insurers primarily engaged in health, re-insurance, agriculture or export credit guarantee business. The Authority grants this through regulations.

What is the difference between act only and comprehensive motor policy?

An act only policy covers legal liability to third parties. A comprehensive policy covers that liability plus damage to your own vehicle.

Does section 32D fix the percentage of third party business?

No. The percentage is left to regulations. Do not quote a figure in your answer unless given.