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Knock for Knock Agreement in Motor Insurance

Team AckoSep 6, 2021

There are two types of covers when it comes to vehicle insurance policies in India - Third-party Liability and Own Damage Cover. 

To give you a context, the Own Damage component will help you if your vehicle (car or bike) incurs any damages due to accidents, fire, natural or man-made calamities, theft or undergoes total loss. 

Knock for Knock Agreement in Motor Insurance

On the other hand, Third-party insurance is mandatory if you want to ride or drive your vehicle in India. Third-liability cover will compensate the third party if your insured vehicle causes any injuries to them or damage their property. 

There can be two types of liabilities here:

  • Damage to the third-party property (including vehicle): The maximum claim payout in such cases is capped at Rs. 7.5 lakh. 

  • Injuries to the third party or loss of their life: There is no cap on the maximum claim payout, and it is decided by the Motor Accident Claim Tribunal (MACT) on a case-to-case basis. 

Normally, in case of accidents, when your car gets damaged with no fault of yours, then ideally under Third-party insurance, the cost of repairs needs to be borne by the driver who is at fault. However, establishing who was at fault can become tricky. Also to claim third-party insurance, you need to file a First Information Report (FIR) with the police and prove in court that the other party is at fault. These court trials can turn out to be time-consuming, tedious and costly. Hence, not many people register claims under Third-party insurance plans. 

So what is the other option?  This is where the Knock for Knock agreement comes into the picture. Let's understand the significance of this agreement in detail. 

What does Knock for Knock agreement mean in motor insurance?

Insurance companies know that the Third-party claim settlement process can be tedious and lengthy. Hence, insurers sign a Knock for Knock agreement. The Knock for Knock is a type of agreement between motor insurance companies where they agree to bear the repair cost of their own customer’s car instead of establishing blame on the other car driver. Here, the claim will be made against the Own Damage part of the policy and not on the Third-party Liability component.

Theoretically, a Third-party Liability Policy will help you get the repair cost when your car is damaged because of someone else's fault. Here the insurance company of the driver at fault will compensate you for damage under the other driver's Third-party Liability component. 

However, as mentioned above, you need to prove that the accident was caused as a result of the other driver's fault. And you can prove it only in a court of law, more specifically The Motor Accident Claims Tribunal. This is a civil court where motor accident victims can fight a case for compensation. However, such cases require a lot of time and money (legal fees) to proceed. Thus, the Knock for Knock agreement between insurance companies seems like a more logical choice.

Knock for Knock Agreement In India

The Knock for Knock agreement was created by the General Insurance Council (constituted by the IRDAI in the year 2001). It represents all Indian general insurance companies. Signing the Knock for Knock agreement is not mandatory for an insurance company. However, through this agreement, they can avoid the piling up of Third-party claims that get dragged to court. Signing this agreement can help expedite claims and reduce the cost and efforts otherwise required to settle a third-party claim.

Benefits of Knock for Knock agreement

Here is a list of benefits of the Knock for Knock agreement for you and the insurer. 

Benefits for you (i.e. policyholder) Benefits for the insurer
Quickly recover expenses incurred to repair the damages. Avoid unwanted delay that arises while dragging the third party claims to the court.
Since the third-party claim process is tedious, this agreement provides more convenience. Saves time, effort and costs for the insurers.

Examples of Knock for Knock agreement

Here are a few examples of the effects of the Knock for Knock agreement.

1. Mr. A was driving his car down the slope and lost control of the vehicle. It hit Mr. B's car at high speed causing major damage to Mr. A's car. Here, Mr. B's car was also damaged due to the heavy impact. 

Both Mr. A and B had Comprehensive Car Insurance Plans and their insurers had signed the Knock for Knock agreement. Due to this, the respective insurers settled Own Damage claims and compensated their customer instead of taking the matter to court and establishing blame on Mr. B.

2. The driver of a small tempo had loaded his vehicle with fragile goods within the permissible weight. He got distracted and lost control of the tempo, it toppled at a turn and damaged a car. Even the tempo suffered minor damages.. The car driver was attempting to take a turn without signalling and was suddenly hit by the loaded tempo. Both drivers were at fault in this situation. The Knock for Knock agreement between their insurers saved their time and money against court cases and both were compensated for their loss.

3. There was an oil spill on the road and all vehicles were instructed to stop. However, two-car drivers showed confidence that they can drive over the spill and continue with the journey. Unfortunately, both cars spun and collided resulting in damages. They had Comprehensive Car Insurance Policies and as you guessed, their insurers were a part of the Knock for Knock agreement. The compensation was made against the Own Damage component without establishing blame on the other driver.

Exceptions of Knock for Knock agreement

Following are the three major exceptions of the Knock for Knock agreement.

Only applies to accidents that occur within the geographical limit 

Car insurance companies often set a geographical boundary for claim settlement. These are usually the borders of India. Any accident that occurs outside these limits would get rejected and the insurance companies will not be liable to pay the compensation.

Only applies to Own Damage claims

Since each insurance company will compensate their customer, this claim will be made under the Own Damage Component and not against the Third-party Liability part of the policy. Meaning, as a policyholder, if you register a claim under the Own Damage component in such cases, you will lose out on the No Claim Bonus benefit, even if you were not at fault. 

The claim settlement amount cannot be more than the IDV

The IDV (Insured Declared Value) is the approximate value of a car. Like all other Own Damage claims, the claim under the Knock for Knock agreement will also be limited up to the IDV of the car.

Claims involving tramways and railways are not admissible

The Knock for Knock Agreement will come into effect only when two (or more) vehicles are involved in an accident. Any damage caused because of an accident with the tramways or railways does not come under the terms of the agreement.

You haven't purchased Own Damage cover

The agreement shall not apply if you have purchased only a Third-party Liability offer and haven't purchased a Comprehensive Insurance plan that covers both Own Damage and Third-party Liability components. 

Frequently asked questions

FAQs

Why is buying Third-party insurance mandatory if we have the Knock for Knock agreement in place?

A Third-party or Liability-only insurance policy is mandatory if you want to ride or drive your vehicle on the Indian roads. 

Under Third-party insurance, compensation for third party property damages is capped at Rs. 7.5 lakhs. To avail this compensation, one has to approach the court and file a case against the offending vehicle or driver at fault. The verdict takes time, and even this process is cumbersome. Hence, liability only or third-party insurance is mandatory to safeguard the insured from paying huge compensation to the victim. 

Knock for Knock agreement is not mandatory for insurers. Under Knock for Knock agreement, if one has purchased a Comprehensive policy, the damages caused to the insured vehicle is quickly settled.

Why do car insurance companies sign the Knock for Knock agreement?

Insurers are aware that the third-party claim settlement process is time consuming, painstaking and costly. Plus, it is also a frustrating experience for their customers. Hence, insurers sign the Knock for Knock agreement to avoid unnecessary delay in claim settlement and provide convenience to their customers.

How does a car owner benefit from a Knock for Knock agreement?

The process of Third-party claim settlement is tedious. From filing an FIR, obtaining the charge sheet from the policy, to attending court hearings, the investment of time and money for the car owner is high and frustrating. Such claims can take months or even years for a settlement. On the other hand, an Own Damage claim can take a few days for settlement. The process is also hassle-free and you get the car insurance claim amount much sooner.

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