A knock for knock agreement is also known as an "extended liability" or "first party" coverage. This type of coverage pays for damages and injuries to other drivers and passengers in any car accident that you are involved in, up to your policy limit, regardless of who caused the collision.
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 car insurance is made mandatory as per the Motor Vehicle’s Act, 1938 wherein you are mandated to have at least a third party car 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.
Case Scenario:
Mr. Manoj has purchased a brand new BMW and insured with a reputed insurance company for a period of one year. He is very good at driving and is careful while driving on busy roads. This kind of driving behavior 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. Manoj 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. Manoj approached his insurance company and explained them the situation and that the other driver is at fault. He was firm 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.
Benefits of a Knock for Knock Agreement:
Knock for Knock is a type of agreement that is used to limit liability. This type of agreement does not require one party to pay the other for any damage they cause, but it does require that the parties have an equal amount of liability. This means that if one party cause’s damage to the other, then the first party will be required to pay for a proportional amount of damage caused by both parties. The benefits of having this type of agreement are numerous.
Advantages for Policyholders & Insurers:-
- Saves time, effort and costs for the insurers.
- The first benefit is that it protects you from being liable for damages caused by another person’s negligence or misconduct.
- It also protects you from paying more than your share in damages if both parties are negligent or reckless in their actions.
- Finally, this type of agreement can help you avoid litigation because it limits your liability and prevents disputes over who pays what in damages.
- Quickly recover expenses incurred to repair the damages.
- Since the third-party claim process is tedious, this agreement provides more convenience.
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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| Pro’s |
Con’s |
| In the event of damage to vehicle |
Shall not apply to tramways or railways |
| Claims for medical expenses |
Shall not apply to loss or damage covered by policy for any cover less than comprehensive issued |
| Damage to motor vehicle whilst in the hands of a marker etc. |
Shall apply only to accidents, geographical areas of applicable policies. |
Consider these points before opting Knock for Knock Agreement:
This knock for knock agreement will allow for a faster process in settling third-party insurance claims. Now, that we know what is knock for knock agreement, let’s look at a few crucial features of this facility:
- It is not compulsory for all insurers to sign a knock for knock agreement. Hence, it is better to check with your insurance company about the same before filing an insurance claim.
- Through the knock for knock agreement, insurance claims are settled under the own damage component of your insurance policy. As a result, you stand to lose your accumulated No Claim Bonus, even if you did not cause the accident.
- While the maximum compensation for vehicular damages under the third–party insurance cover is capped at Rs 7.5 lakh by the IRDAI, through the knock for knock agreement, you can receive compensation that is equal to the Insured Declared Value (IDV) of your vehicle.
- The knock for knock agreement is not mandatory by law. This means that even if you and the third–party have bought insurance policies from insurers who have signed the knock for knock agreement, you can still take the case to court if you wish to do so.
The knock for knock agreement is one of the best ways to settle third–party claims. It can not only help you save money but also speed up the process of getting your claim approved and sanctioned.
Knock for Knock Agreement vs Third Party Claims:
| Knock for Knock Claims |
Third Party Claims |
| It will not affect your NCB rate even if you claim under your policy |
It will affect you NCB rates |
| Procedure is fast |
It is not easy to complete a claim |
| Involves other party insurers |
Not involve another party insurers |
Documents required for knock for knock agreement:
- Vehicle ownership certificate
- Police investigation report
- A completed claim form
- A verified copy of original police report
- Copy of identity card & driving license of the insured person and the driver at the time of the accident
- Details of the insurer and a copy of the other party’s police report
- Details of the estimated cost of repairing the vehicle itself by the appointed panel.
Knock for Knock Agreement FAQs:
Why car insurance companies have the Knock for Knock agreement?
Insurers are aware that it can be a slow and painstaking process to settle customers' claims. Plus, it can be frustrating for both the customer and the insurer. To avoid delays in claim settlement, insurers sign the "knock for knock" agreement. This makes claiming easier for customers.
What is own damage knock for knock claim?
Own damage knock for knock claim involves the situation when your vehicle suffers damage after being knocked by another party who is at fault.
How does a car owner benefit from a Knock for Knock agreement?
To avoid this, we recommend getting a comprehensive car insurance cover, which includes that kind of insurance. Apart from providing help and support in case of an unfortunate accident, it also includes third party claim settlement. Repairing your own car is a lot faster than waiting for insurance settlements and the process is easy. You will get most of the compensation you need sooner.
What is knock for knock agreement in insurance?
Knock for Knock is a type of exchange agreement between motor insurance companies where the company agrees to pay for the other driver's damage rather than determining blame. We will dispute the policy's Own Damage component and not Third-party Liability component.
Conclusion:
The knock for knock agreement can really come in handy if you're entering into a third party claim. You can get the basics from your general insurance company and decide if it's right for you before making a claim. In case a customer opts to go with their own damage cover, then the status of ‘No Claim Bonus’ will be lost.
As we all know, the process of filing third-party insurance claim is long and tedious with police and courts involved. This agreement is not mandated by law, but rather, is the result of an understanding between the insurers. This agreement is entered into to avoid the unnecessary delay that is encountered by dragging third-party claims to court.