The MACT Litigation Overload: How India's Regulatory Trifecta Forces Cases into Court

by Siddarth Raman and Maya Ramesh.

Indian courts are drowning in third-party motor accident claims. More than a million claims, worth over INR 80,000 crore await resolution. These disputes account for a tenth of all civil pendency. In this article, we argue that this explosion in litigation is a consequence of poor regulatory design. India's third-party motor insurance market operates under a unique set of rules that dismantle the foundational economics of insurance. Coverage is mandatory, insurers cannot select customers, premiums are fixed by the regulator, and liability for injury or death is uncapped. These rules distort incentives: they encourage claimants to pursue bigger awards through courts, while leaving insurers with only one strategy - delay. This behaviour is often narrated as a simple story of bad firms harming consumers, when it is the inevitable consequence of a certain arrangement of incentives. The system effectively guarantees that most accidents end up in litigation.

Insurance economics - A short introduction

Insurance operates on an elegant economic principle -individual risks aggregate across large populations to convert unpredictable events into manageable outcomes at the group level.

By pooling risks, insurers use the premiums of many to pay the claims of the few. Risk-based pricing is key: older people pay higher health insurance premiums than younger people, smokers pay more than non-smokers for life insurance, homeowners in flood or earthquake zones pay more for property insurance. In the UK, younger drivers pay higher premiums to get behind the wheel, compared to drivers over 30.

In most insurance transactions, the interests of the insurer and the policyholder align. When you buy health or comprehensive car insurance, your insurer wants to pay valid claims promptly to keep customers satisfied, build loyalty and ensure recurring revenue. This alignment breaks down in third-party (TP) liability. The insurer has no customer relationship to maintain with the victim, creating a financial incentive to minimize and delay payouts.

Unique distortions in the Indian market

The Indian regulatory framework distorts conventional TP insurance dynamics through three specific interventions:

1. Mandatory Purchase and Mandatory Offer: Section 146 of The Motor Vehicles Act (MVA) mandates that every vehicle owner buy third-party insurance. Section 32D of the Insurance Act, 1938 mandates that general insurers underwrite minimum percentages of motor TP business. IRDAI's 2015 regulations explicitly forbid insurers from refusing liability-only policies. This dual compulsion creates a captive market where neither buyer nor seller has meaningful choice.
2. Regulated, Non-Risk-Based Pricing: IRDAI sets the premium for this mandatory TP insurance. These premiums are based on vehicle categories and historical aggregate claims data. They do not factor in the individual driver's risk profile - their driving record, age, experience, location, or their history of insurance claims. A safe or good driver with no history of accidents pays the same TP premium as a high-risk driver for the same vehicle class who may have chalked up a record. This decouples price from individual risk, preventing insurers from charging premiums commensurate with perceived risk.
3. Uncapped Liability for Injury / Death: The MVA imposes unlimited liability on the insurer for death or bodily injury. The 2019 amendment has a mechanism to link premiums and liability (Section 147(2)). When notified, the Motor Vehicles (Third Party Insurance Base Premium and Liability) Rules, 2022 schedule continues to specify base premiums for unlimited liability.

As of December 2025, the premium for a 1-year TP insurance for a 4 wheeler of less than 1000 cc is INR 2094. Prices were last raised in 2020. The industry faces persistently high claims ratios (claims paid out as a ratio of premiums collected). In 2023-24, the industry-wide incurred claims ratio for motor insurance reached 78%. For PSUs like New India Assurance, the net incurred claims ratio hit 108% in FY 2024-25, meaning they paid out more in claims than they collected in premiums. The problem isn't new. The industry was discussing similar problems a decade ago.

The litigation funnel

Parties negotiate liability compensation in specialized Motor Accidents Claims Tribunals (MACT). A 2019 amendment automatically converts police DARs into claim petitions. Bargaining now begins under the direct oversight of a court. Litigation is the default, institutionalised starting point.

Consider the incentives this structure creates for rational actors. Insurers are forced to accept uncapped liability at a fixed, non-risk-adjusted price. Any large claim, involving injury or death is riddled with subjectivity, making it impossible to anticipate the potential payout. While an objective formula has been proposed, the deviations and exceptions are many. These formulae usually involve compensation of potential future income. In a poor country, this may involve pedestrians and drivers whose income isn't reported formally.

From the perspective of an insurance firm, each policy brings with it the prospect of potentially unbounded losses. There is no upside to paying higher amounts or doing it quicker - the insurer has no relationship to forge or salvage, and there are no reputational costs to delays or denial, unlike in own damage insurance. The legal costs in this kind of bulk litigation that insurance firms go through are comparably trivial to an uncapped liability. This is evident in the data from the IIB Motor Annual Report 2019-20: while 93% of OD claims settle for under INR 50,000, TP payouts run into lakhs.

In this context -

• Challenging the quantum of compensation is standard practice. It offers a chance to reduce the payout on appeal.
• Delaying the payout allows them more float.
• Signalling intransigence prevents future claims from using past allowances as precedent.

Insurers are also expected to make an offer within 30 days of the DAR being filed. This rarely happens. Any offer without a claim request will act as the floor for future bargaining. It is game theory optimal to lowball, or not make an offer. Contesting the claim amount, or challenging the facts surrounding income or extent of disability is perceived as unnecessary adversarial obstruction. It is a rational response to managing uncapped, subjectively determined liabilities against inadequate, fixed premiums, especially when bargaining in public.

Claimants pursue a different calculus. Under the standards established in Sarla Verma vs DTC (2009) and National Insurance Co. Ltd. vs Pranay Sethi (2017), the judiciary interprets 'just compensation' liberally. Any discussion between claimant and insurance firm is also intermediated through lawyers from the get-go. Lawyers acting to maximise their client's outcome advise the client on the potential for higher awards through the MACT process, leveraging the subjective elements in compensation calculation and the pro-claimant judicial stance. Accepting an early, potentially lower, out-of-court offer is less rational than pursuing the claim through the tribunal. If the initial award seems insufficient, claimants are also incentivised to appeal for enhancement in the High Court.

Why cases take decades

On paper, the system has avenues for settlement. In practice, they are largely an illusion. The regulatory architecture systematically discourages private resolution and co-opts settlement into the formal court process.

The moment a police officer files a Detailed Accident Report (DAR), the MVA mandates that the MACT must treat it as a claim petition. The clock starts ticking, and the case is officially in the judicial system, often before the claimant has even hired a lawyer. Even if the parties wish to settle, an offer to the claimant must be made within 30 days of receiving information of the accident, and recorded with the tribunal.

While mechanisms like Lok Adalats settle many cases, they function as an adjunct to the courts, handling cases referred by the MACT. The resulting settlement becomes a binding award, stamped with judicial finality. The system doesn't prevent compromise, but it demands that compromise happens under its watch, contributing to the docket load and reinforcing the MACT as the inescapable center of the universe for accident claims.

The MACT isn't necessarily efficient at disposing these claims. Cases last over a year, and the MACT often struggles with just getting parties to court. Even when an award is passed - both insurers and claimants have reasons to challenge it. For insurers, every MACT award above their initial assessment is worth appealing. The potential reduction in payout, combined with years of additional float on unpaid claims, makes the appeal economically viable even with low success rates. For claimants, the judicial system's pro-welfare stance and the subjective nature of compensation calculations mean enhancement petitions often succeed. Their lawyers, working on contingency, have every reason to encourage appeals.

The result is that cases often take decades to complete. We get a rough dipstick by examining a random sample of three judgements in MACT appeals that were delivered in January 2025 in the Delhi High Court.

• Case 1 - MAC APPL. 314/2021 (10 years): 2015 Accident → 2025 HC Judgment.
• Case 2 - MAC. APP. 94/2020 (12 years): 2013 Accident → 2025 HC Judgment.
• Case 3 - MAC. APP. 139/2021 (11 years): 2014 Accident → 2025 HC Judgment.

Each of these took over a decade to resolve. These are not outliers. Data from Delhi, Kerala, and Odisha shows that High Court MACT appeal pendency runs at 25-30% of district court pendency - a staggering appeal rate that reflects both parties' incentives to keep fighting.

Global parallels: The logic of trade-offs

India's regulatory framework is a global anomaly. While mandatory TP insurance is common worldwide, no other major economy imposes the same rigid combination of constraints. Other systems balance the mandate to purchase with trade-offs in pricing or liability.

The UK and Singapore, like India, have uncapped liability for personal injury to ensure victims are fully compensated. However, they balance this enormous potential payout by allowing competitive, risk-based pricing. Insurers can charge a high-risk driver more than a safe one, using the price mechanism to manage their exposure. China takes the opposite approach. It has regulated pricing for its compulsory insurance (CTALI), but it balances this by imposing strict statutory caps on the insurer's liability for death, injury, and property damage. The insurer's risk is known and finite. Most other systems, like those in the US and Australia, also mix and match, but they consistently avoid the trifecta. They pair mandatory insurance with risk-based pricing and various liability caps through tort reform.

Country	Regulated Pricing	Uncapped Liability
India	✔	✔
UK	✖	✔
Singapore	✖	✔
China	✔	✖
USA	✖	✖
Australia	Varies	✖

India stands alone in forcing insurers to take on unknown risks (uncapped liability) for a fixed, non-risk-based price. Insurance firms have no competitive edge - they cannot differentiate on offering, on price, on customer selection or ability to underwrite. This leaves them with no lever except optimising operational costs, or resorting to delay and dispute, making litigation the inevitable outcome.

Conclusion

The million-plus pendency overwhelming India's MACTs isn't a bug - the system is working as designed. When regulation simultaneously mandates purchase, fixes prices without regard to risk, and imposes uncapped liability, it makes fighting every claim the most sensible financial strategy for insurers. Claimants, guided by lawyers who understand the rules, have every reason to push for higher awards. Both sides are responding to incentives.

More judges won't solve this. Neither will faster procedures, or better technology. These are bandages to a structural problem. The solution demands fundamental regulatory reform: keep compulsory purchase (Section 146), but free the other levers - allow insurers to price for risk, and replace the unlimited liability by a capped liability schedule linked to base premiums (Section 147(2)). These are difficult changes with second order effects - poor drivers can get priced out and the burden of large claims will shift from firms to individuals. They may require complementary policies like higher penetration of personal accident insurance, a large public fund for the uninsured, top-up options to increase the liability cap for commercial vehicle owners. The fix is conceptually straightforward; the transition is unlikely to be. A time-bound expert committee should draft the amendments and phase them in.

India needs more functional insurance markets, not more courts. Markets need release valves - one cannot fix every variable and expect the system to work. Until our policies reflect this understanding, the litigation assembly line will keep running. Processing human tragedy through a decade-long judicial machinery serves no one's interests - not the victims waiting for compensation, not the insurers bleeding money, not the courts drowning in cases. In this case, the road to this dysfunction was paved with the best social welfare intentions.

References

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Sarla Verma v. Delhi Transport Corporation. 2009. AIR 2009 SC 3104. Supreme Court of India.

National Insurance Co. Ltd. v. Pranay Sethi. 2017. AIR 2017 SC 5157. Supreme Court of India.

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Siddarth Raman is senior research lead at XKDR Forum. Maya Ramesh is Counsel at Solaris Legal. The authors thank Shubho Roy, Ajay Shah and Susan Thomas for useful inputs and discussions.