Nearly 56% of vehicles plying on Indian roads do not have valid motor insurance, despite it being mandatory by law. The Supreme Court has termed this a serious enforcement gap. It has now proposed a series of measures, from automatic e-challans to a possible 'no insurance, no fuel' system, to improve compliance.
The directions came while the Supreme Court was hearing an appeal filed by National Insurance Company Ltd. in a motor accident compensation case. Although the insurer's appeal was dismissed, the court expanded the scope of the proceedings to address the broader issue of uninsured vehicles and enforcement gaps.
Supreme Court extends mandatory third-party insurance period
The Supreme Court on Tuesday (August 4, 2026) extended the mandatory third-party insurance period for new vehicles by one year.
Accordingly:
- New private cars must now be sold with 4 years of third-party insurance, up from 3 years earlier
- New two-wheelers must now be sold with 6 years of mandatory third-party insurance, up from 5 years earlier
The court observed:
"We notice that despite eight years having passed from the said direction, a large number of vehicles remain uninsured. While the IRDA and GIC have recommended that this period not be enhanced, we are of the view that it is in the interest of road safety that the period be enhanced by one year."
The court directed IRDAI to issue the necessary directions immediately.
'No insurance, no fuel' proposal under consideration
The Supreme Court also proposed a technology-driven pilot project that could eventually link fuel dispensing at petrol pumps with a vehicle's insurance status.
"Measures such as linking fuel purchases to insurance verification can act as both an effective enforcement tool and a reminder to keep policies active," says Paras Pasricha, Business Head - Motor Insurance at Policybazaar.
However, the court has not ordered its immediate implementation.
Instead, it directed IRDAI, in consultation with the Ministry of Road Transport & Highways, to examine the feasibility of such a system and develop a pilot project.
If implemented in the future, vehicles without valid insurance may be denied fuel until their insurance is renewed.
According to the court, such technology could significantly improve insurance compliance while also helping authorities identify uninsured vehicles more efficiently.
Pilot project to let citizens verify vehicle insurance
The court directed a pilot project that would allow citizens themselves to verify whether a vehicle has valid insurance.
The stated objectives are:
- check whether a vehicle has insurance before travelling in it or transporting goods,
- enable prompt reporting of uninsured vehicles.
The Supreme Court directed authorities to integrate Automatic Number Plate Recognition (ANPR) cameras installed on highways and city roads with the Insurance Information Bureau (IIB) database and the VAHAN portal.
Once implemented, the system will automatically identify uninsured vehicles and generate e-challans electronically.
The court also directed that traffic police be equipped with handheld devices or mobile applications connected to these databases, enabling officers to verify a vehicle's insurance status instantly during inspections and issue penalties wherever required.
The current fine is Rs. 2,000 for the first violation and Rs. 4,000 for repeat violations. As these penalties have not had the desired effect, they may be increased.
New four-layer motor insurance structure
The court accepted IRDAI's proposal for a simplified four-layer insurance structure to make policy choices easier for consumers
| Insurance cover | Mandatory/Optional | What it covers |
| Third-party insurance | Mandatory | Legal liability towards third parties |
| Legal liability cover | Optional | Occupants and pillion riders (other than owner, driver and family of the insured) |
| Personal accident cover | Optional | Death or permanent disability of owner-driver and occupants |
| Own damage cover | Optional | Damage to the insured vehicle |
The court also directed IRDAI to standardise policy wordings so that optional covers are presented uniformly across insurers.
Why did the Supreme Court issue these directions?
The court noted that despite statutory requirements under Section 146 of the Motor Vehicles Act, a significant number of vehicles continue to operate without valid insurance.
Apart from uninsured vehicles, the Court also observed that many vehicles do not possess valid registration, highlighting a wide gap between the legal mandate and its enforcement.
To improve compliance and make motor insurance easier for consumers to understand, the Court issued several directions to the Ministry of Road Transport & Highways (MoRTH) and the Insurance Regulatory and Development Authority of India (IRDAI).
"Mandatory third-party insurance exists to ensure that accident victims are not left without recourse because the at-fault vehicle is uninsured, and these directions could strengthen compliance and reduce instances where accident victims face prolonged litigation due to uninsured vehicles. That said, improving awareness around the importance of maintaining valid motor insurance is equally important," says Pasricha.
Customer option form to become mandatory
To help buyers understand exactly what they are purchasing, the Court directed that every motor insurance customer, whether buying online or offline, must receive a standardised Customer Option Form.
The form will clearly specify:
- What is covered under mandatory insurance.
- Which covers are optional.
- The premium payable for each optional cover.
Customers can then choose additional covers through a simple checkbox-based system, making the purchase process more transparent.
