Getting motor insurance through auto companies, dealers may no longer be advantageous
02 Jan 2020
Motor insurance commission is one of the biggest source of earnings for the vehicle companies and dealers, who have got themselves registered as insurance agents/brokers.
Most people prefer to get their vehicles insured through the auto companies or the auto dealers while buying it, as the process is hassle free and the buyers may get the services done through the dealers in case of any accident without calling insurance agents or insurance companies.
Taking an insured vehicle on road directly out of the showroom is not only easier for the buyers, but dealers mostly quote the on-road price after adding the insurance premium with ex-showroom price along with other mandatory taxes without asking the customers if they want to take insurance from the company/dealer, thus forcing the unsuspecting buyers to take insurance from them.
However, rampant discrimination and malpractices have forced the Insurance Regulatory and Development Authority of India (IRDAI) to act against the vehicle companies and dealers to stop them from arm twisting the insurance companies to get greater facilities and payouts.
To understand the discrimination and malpractices, the structure of motor insurance need to be analysed.
There are two components in motor insurance – Third Party (TP) and Own Damage (OD). While the rates of TP premium vary with engine capacity, the rate of OD premium, along with the engine capacity, depend on cost of the vehicle, which in turn depends on age of the vehicle. The rate of premium is released every moth, to facilitate the calculation of premium.
While there is no scope of discrimination in the TP part, insurance companies are permitted to give discounts on OD part, which are supposed to be passed on to the owner of the insured vehicles.
As the insurance premium is included in the on-road price, vehicle companies and dealers charge full OD rate along with the TP premium. Not only this, being providers of bulk businesses, dealers also force insurance companies to hand over the OD discount to them as promotional expenses or any other name, so that they don’t have to pass the benefit to the customers but retain the entire amount.
In fact, motor insurance commission is one of the biggest source of earnings for the vehicle companies and dealers, who have got themselves registered as insurance agents/brokers.
Apart from extracting the extra money from insurance companies, such vehicle companies and dealers also force insurance companies to get them benefits like cashless repair and arm twist the insurers to stop them from extending the facilities to retail motor insurance agents.
So, owners of the motor vehicles get discriminatory services even after getting same insurance policy form same insurance company, but through different Motor Insurance Service Providers (MISPs).
To survive the competition, retail agents have no option but to negotiate heavy discounts on OD part from the insurers and pass the benefits to the owner of the vehicles to get their vehicles insured at cheaper premium, thus getting very low commission, as commission is allowed to be paid on OD premium only.
Despite getting vehicles registered at lower premium, retail agents only get work form some people associated with vehicle industry, who have knowledge of such discrimination and negotiate for maximum discount and that too mostly for old vehicles.
The problem for the retail agents escalated after IRDAI allowed long-term motor insurance, which drastically reduced the chances of retail agents getting motor insurance business.
Due to fear of losing bulk businesses, insurance companies didn’t resist the arm twisting by the vehicle companies and dealers and didn’t pay heed to complains of retail agents and continued with their discriminatory policies.
However, the plight of retail agents and rampant discrimination and malpractices have attracted the attention of IRDAI, and the insurance regulator has not only come up with guidelines to stop such discrimination and malpractices, but has also penalised large MISPs like Maruti Insurance Broking Pvt Ltd (MIBL) and Hero Insurance Broking India Ltd (HIBIL).
In it’s latest action on December 31, 2019, IRDAI has imposed a fine of Rs 2.18 crore on HIBIL for violating norms on motor insurance service providers, forcing customers to buy policies from their panel and discriminating policyholders, among others. The insurance regulator earlier slapped a fine of Rs 3 crore on MIBL.
IRDAI has taken such actions after receiving complaints from policyholders against some of the MISP sponsored by insurers and insurance intermediaries that they are doing the following:
a) forcing motor customers to buy motor insurance policies of the insurers who are on their panel.
b) having uniform premium rates of different insurers for same motor vehicle.
c) discriminating between insurance policyholder who has bought motor insurance from that motor dealer as against those who has not bought from them.
With the IRDAI cracking whip on the MISPs, you may have the convenience of driving an insured vehicle out of a showroom by getting it insured through the manufacturer/dealer, but would not get any other advantage over getting it insured by any other agent. So, ask the dealer for discount in premium if you are planning to buy a car or bike.