A Mechanism for Generation of Road Safety Fund

Road Safety Funding Through Insurance Levies

In Kerala there are 11 major players in motor vehicle insurance industry, out of which 4 are public players and rest are private. The total premium collected from Kerala by these companies for the financial year 2012-13 is USD 777.95 million.

Out of the total premium collected by insurance companies, 70% is spent on meeting the claims, 21.5% as operating expense, 3.5% as commission and 5% retains as profit.

Fund Generation Potential from Insurance Companies

As the average profit generated by motor vehicle insurance companies in India is 5%, a contribution of up to 2.5% can be collected towards road safety fund. Different options from 1% to 2.5% can be tried to find the best possible option. Table-6 presents the share of Premium which could be collected from insurance companies. Also a projected increase in vehicle population has been considered in working out the fund generation potential.

At present a one-time cess for road safety is collected from every Motor Vehicle during registration. Cess is collected at a rate of Rs.50 to Rs.250 (USD 0.82 to USD 4.2) depending on the category of vehicle.

The second mechanism for fund generation for road safety is to increase the cess for all new vehicles by 50% and by 100% as two options.

Fund Generation through Special Tax for Road Safety on Fuel

The third mechanism for fund generation is to have a special tax for road safety on fuel. In this mechanism the levy is dependent on vehicle usage, as it is the fuel which is taxed. In Kerala state 269,058 kilolitres of motor vehicle fuel was sold during the year 2012-13

In this mechanism different rates of fuel taxation according to the willingness to pay survey have been considered, starting from 5 paise/litre up to 25paise/ liter. Table-8 presents the fund generation potential from special tax on fuel.

Grants from Central Government

For the road safety activities in the National Highways of Kerala, a Central Government grant of 35 % has been considered. This consideration is made on the basis that, 35% of the total road accident fatalities in Kerala are happening on National Highways, as there are no other criteria available with us.

(Fund generation potential from increased traffic fines from offenders and from part of driving licensing fee have not been considered as a part of the study due to data insufficiency)

Different combinations of the above mechanisms of fund generation are formed to generate the fund required to meet the target of road accident reduction.