Mandatory insurance for motorcycles and scooters: Should it be abolished or continued?

Many conflicting opinions

On June 16, 2022, the 15th National Assembly passed Law No. 08/2022/QH15 on Insurance Business, which mandates civil liability insurance for owners of motor vehicles, including motorcycles and scooters. This law will officially come into effect on January 1, 2023 (except for some provisions which will take effect from January 1, 2028).

However, recently, voters in some localities such as Dak Lak and Ba Ria - Vung Tau have suggested that motorcycles should be removed from the list of vehicles required to purchase civil liability insurance.motor vehicle ownerMost recently, in response to Official Letter No. 9095/BTC-QLBH dated September 12, 2022, from the Ministry of Finance requesting comments on the Draft Decree regulating mandatory civil liability insurance for owners of motor vehicles and some other types of insurance, the Vietnam Chamber of Commerce and Industry (VCCI), based on the opinions of businesses and experts, argued that mandatory insurance is an administrative intervention by the State in the freedom of agreement of citizens and businesses. Therefore, the state agency must demonstrate that the public benefit gained from restricting this right far outweighs the costs incurred.

Over the past period, the implementation of mandatory insurance has proven to bring many social benefits, except for civil liability insurance for motorcycle owners. According to reports, after more than 10 years of implementing Decree 103/2008/ND-CP, the payout rate for mandatory civil liability insurance for motorcycles remains very low, at nearly 6% in 2019 (45 billion VND paid out of 765 billion VND in insurance premiums). This rate is much lower than other types of mandatory insurance; specifically, the payout rate for civil liability insurance for automobiles is about 33%, and for fire and explosion insurance is 31%.

A motorcycle accident occurred in Nghe An province. (Photo: BNA archives)

The Vietnam Chamber of Commerce and Industry (VCCI) also acknowledges that insurance has the advantage of faster payouts for accident victims and reduces the financial burden on those responsible for compensation. However, with a meager payout of 45 billion VND, it is difficult to argue that the benefits from this compensation outweigh the social costs of 765 billion VND. Thus, in terms of overall social benefits, mandatory motorcycle insurance currently does not guarantee the principle of benefits exceeding costs.

Currently, in Nghe An province, there are approximately 19 insurance companies and businesses operating in the insurance sector. With a total of about 2 million motorbikes in the province, the number of people participating in mandatory civil liability insurance is very low. Simultaneously, the percentage of vehicle owners receiving insurance payouts after accidents is also very small. For example, at Bao Viet Nghe An, in 2021, over 18,000 motorbike owners participated in mandatory civil liability insurance; in the first 10 months of 2022, the number of participants was 16,550. However, not a single claim was made in either 2021 or the first 10 months of 2022.

In its comments, the Vietnam Chamber of Commerce and Industry (VCCI) also argued that the low payout rate of civil liability insurance for motorcycle owners is due to weak regulations and enforcement, not because this type of insurance does not provide social benefits. However, this policy has been in place for over 30 years, since 1988, and has undergone numerous revisions. If the detailed regulations or enforcement process are problematic, why has this situation not been rectified?

Therefore, VCCI has proposed that the drafting agency consider abolishing the mandatory requirement for motorcycle owners to purchase civil liability insurance, instead basing it on voluntary agreement between the parties. Simultaneously, several regulations should be amended to increase the payout rate for civil liability insurance products for motorcycle owners, such as reducing insurance premiums; increasing insurance compensation limits; reducing insurance liability exclusions; and simplifying insurance claim procedures. Furthermore, information on mandatory insurance should be made public, including insurance revenue figures and claims settlement quality data, encompassing aggregated data and data categorized by vehicle type and insurance company. If made public, this information would contribute to encouraging insurance companies to compete by improving service quality and customer care, thereby generating greater added value for society as a whole.

However, many argue that mandatory civil liability insurance for motorcycle and scooter owners should continue. They believe that with the limited sense of responsibility among the public, relying on voluntary insurance purchases is not feasible.

Dr. Nguyen Trong Hai, a lawyer and Director of Trong Hai & Associates Law Firm, believes that this type of insurance should remain mandatory because it protects the financial interests of motorcycle owners. The principle of this insurance is "using the many to compensate for the less fortunate few." Regulations regarding mandatory civil liability insurance for motor vehicle owners are becoming increasingly specific and clear.

Whether insurance claims are mandatory or voluntary, and regardless of the field, the payment of insurance benefits requires adherence to a specific procedure. However, this procedure is a unified set of regulations comprising a series of closely related tasks, which can sometimes create difficulties for both the claimant and the claimant.

Dr. Nguyen Trong Hai, Lawyer - Director of Trong Hai & Associates Law Firm

Currently, the insurance premium and compensation amount for accidents caused by motorcycle or scooter owners to third parties are clearly stipulated by law. (Photo: Tien Dong)

Understanding mandatory motorcycle insurance correctly.

According to regulations, the insurance premium for two-wheeled motorcycles with a cylinder capacity of 50cc or less and electric motorbikes is 55,000 VND; for motorcycles over 50cc, the premium is 60,000 VND; and for similar types of motor vehicles, the premium is 290,000 VND, all excluding 10% VAT. The insurance liability limit for injuries and fatalities caused by motor vehicles is 150 million VND per person in a single accident. The insurance liability limit for property damage caused by two-wheeled motorcycles; three-wheeled motorcycles; motorbikes (including electric motorbikes) and similar vehicles as defined by the Road Traffic Law is 50 million VND per accident.

Furthermore, regulations regarding compensation payments have been clearly outlined in current legal documents. However, in reality, many people still do not fully understand their rights, obligations, and legitimate benefits after purchasing mandatory civil liability insurance.

When asked about purchasing mandatory civil liability insurance for motorcycles and scooters, many residents in Vinh City shook their heads. Many cited the reason that they only travel around the city, so they didn't buy it; some believed that even with insurance, they wouldn't receive any benefits in the event of an accident, so they generally avoided buying insurance.

Ms. Nguyen Thi Huyen, residing in Ha Huy Tap ward (Vinh City), stated that more than a month ago, while driving her motorbike, she collided with a student riding an electric bicycle. After the accident, the student suffered abrasions to their arms and legs and had to go to the hospital for a health check. To resolve the matter quickly, Ms. Huyen agreed to compensate the electric bicycle rider with over 1 million VND, unaware that when she purchased mandatory civil liability insurance, the insurance company would pay compensation to the injured party.

In fact, statistics show the number of cases.road traffic accidentsAccidents involving motorcycles account for a very large proportion, around 70%. In Nghe An province, in the first 10 months of 2022 alone, there were 74 traffic accidents involving motorcycles, resulting in 59 deaths and 60 injuries. Clearly, once a traffic accident occurs, it causes serious consequences and significant losses for those involved.

Upon inspection, many cases were found where individuals could not present mandatory civil liability insurance, only voluntary insurance for the passenger on motorcycles and scooters. (Photo: Dang Cuong)

According to a representative of a traffic police team on National Highway 1A in Nghe An, during patrols and inspections, most people could not present mandatory civil liability insurance for motorcycles and scooters, but only voluntary insurance for passengers. Many people still confuse these two types of insurance. Motorcycle passenger insurance only covers passengers in accidents involving the vehicle owner, and does not cover third parties.

Some people even argue that it takes a long time to get insurance compensation, and involves many complicated procedures, so they choose to negotiate directly with the injured party instead of waiting for the insurance company.

Mr. Duong Minh Tu, Deputy Director of Bao Viet Nghe An, stated: If people participate in mandatory civil liability insurance, they will be compensated by the insurance company in case of an accident (except in cases of intentional accidents or accidents caused by alcohol or drugs...). Otherwise, people will have to agree on the amount of compensation. If the vehicle owner causing the accident does not have insurance and is in difficult circumstances, then the responsibility for compensation will fall heavily on the family; otherwise, the insurance company will cover the costs.

Many believe that, in order for people to better understand mandatory civil liability insurance for motorcycles and scooters, and their rights in the event of an accident, widespread public awareness campaigns are necessary. There must also be a mechanism for monitoring and promptly handling claims if insurance companies delay compensation payments.

In addition, there needs to be a mechanism for managing the civil liability insurance fund for motorcycles and scooters. If the annual payouts are significantly lower than the revenue collected from this type of insurance, the excess amount should be transferred to the fund for management and use. Alternatively, perhaps there should be a mechanism for gradually reducing the premium for those who have participated in civil liability insurance for motorcycles and scooters for five consecutive years or more…

In a recent interview regarding this issue, Minister of Finance Ho Duc Phoc stated that the regulation mandating civil liability insurance for motorcycles and scooters is necessary and in accordance with the law, meeting practical needs to protect social interests and safety. Minister Ho Duc Phoc also noted that many countries around the world have implemented this type of insurance as a mandatory requirement. He added that this is a solution to ensure timely financial support for victims in overcoming losses of health, life, and property in the event of traffic accidents.