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Understanding Knock for Knock Agreement in Car Insurance

Car insurance is the bread and butter of all the General insurance companies in India. This is due to the reason “Third party insurance” being mandatory to drive your vehicle on a public road. The third party motor insurance is made mandatory as per the Motor Vehicle’s Act, 1938 wherein you are mandated to have at least a third party motor insurance to cover the death and damage to the third parties due to an accident.

Motor insurance claims are the most reported claims due to their nature of frequent usage. This has led to the worst loss ratios among the general insurance companies. Most of the insurance companies have an overall loss ratio above 100% due to the third party claims settled by them. The reputation of an insurance company depends on the number of claims settled and the satisfaction of the customers rather than the premium collected.

Mr. Jibs has purchased a brand new BMW and insured with a reputed insurance company for a period of one year. Mr. Jibs is very good at driving and is careful while driving on busy roads. This kind of driving behaviour earned him good NCB as there were no claims reported. Unfortunately one day when he was driving his car on the left side of the road, one car hit him from front which was moving in the wrong direction.

Mr. Jibs immediately caught hold of the driver and demanded to settle the claim. For this, the driver took out his insurance copy and asked him to settle the claim after taking to the insurance company. Mr. Jibs approached his insurance company and explained them the situation and that the other driver is at fault. Mr. Jibs was adamant to recover the cost of claim from the other party due to their liability in this particular case. But his insurance company explained him the concept of “KNOCK FOR KNOCK AGREEMENT” between the insurance companies.

What is a Knock for Knock Agreement?

A knock for knock agreement is an agreement between two insurance companies whereby, both the company’s customers incur motor losses in the same event; each insurer pays the loss of its own policyholder regardless of who was responsible for the accident.

In simple, the knock for knock agreement settles the claims of their own policyholders if both the parties incur losses due to the same accident. The fault of the other party is not established and the claim is settled by the insurance company. This is the concept used in the insurance industry to prevent the piling of liability claims.

For instance, if insurance companies start claiming liability claims from the other insurance companies the costs incurred during the process will be unbearable for every insurance company. Each insurance company gets a lot of claims and it is practically not a good idea to make other insurance companies liable.

The knock for knock agreement is only for the own damage claims and doesn’t apply to the Third party claims.

The liability of each insurance company under this agreement is limited to the maximum IDV specified under the policy and is subject to other terms and conditions in the policy schedule.

Exclusions under Knock for Knock Agreement:

There are certain exclusions under the knock for knock agreement which are as follows:

  • This agreement shall not apply to tramways and railways.
  • Shall not apply to Third party claims.
  • Claims under this agreement shall not exceed the IDV specified in the policy copy.
  • Shall apply to accidents occurring only in the Geographical areas as specified in the policy.

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