Accelerated Course: Why Mandatory Third Party Liability Insurance Is a Game Changer – Academia

The government plans to introduce mandatory vehicle insurance from 2025, although President Joko “Jokowi” Widodo has indicated that no official discussions have taken place. The government is in the process of drafting the necessary regulations, which are expected to be finalized early next year.

Road traffic accidents are a major global health and development problem, with significant human and economic costs, particularly in developing countries. As the leading cause of death among 15-29 year-olds, road traffic accidents claim 1.25 million lives and injure another 50 million people each year, more than the combined death toll from malaria and tuberculosis.

However, there is a stark contrast in fatality rates, with developing countries reporting rates almost eight times higher than developed countries. The World Health Organization (WHO) reports that while low- and middle-income countries account for about 60 percent of the world’s vehicles, they suffer 93 percent of road fatalities. Indonesia is no exception.

The National Police said there were 134,867 road accidents from January to November 2023, causing property losses worth 258.18 billion rupees ($17.2 million), or about 3 percent of GDP.

This statistic underlines the urgent need for a comprehensive regulatory framework that mandates third-party liability insurance (MTPL) to increase road safety and provide financial protection in the event of an accident. MTPL covers liability for third-party injury or death, as well as property damage resulting from road accidents. This protection is not merely administrative, but also a key element of national road safety strategies aimed at reducing the financial and human costs of road accidents.

A study of MTPL insurance policies around the world reveals diverse practices tailored to each country’s distinct legal, economic, and social landscapes. In Brazil, for example, a comprehensive regulatory framework mandates broad MTPL coverage, which is often administered through public-private partnerships or directly by government agencies. These plans offer a wide range of benefits, including death, disability, and medical expenses, funded by premiums that combine government guidelines and market determinations.

Malaysia’s approach to MTPL has evolved significantly with the phased liberalisation of premium rates initiated in 2017. This policy change has allowed insurers to set rates based on individual risk profiles, leading to a more dynamic and competitive insurance market that offers tailored coverage options and premium structures tailored to the specific risk factors associated with different demographic groups and vehicle types.

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