Take Action Against Auto Dealers! Insurers Urge Irdai, Here's Why

The motor insurance space in India, which contributes to a fair share of the general insurance market, is now under scrutiny, according to a recent media report. This comes on the back of increasing concerns over practices by Motor Insurance Service Providers (MISPs), which are typically linked to vehicle manufacturers or Original Equipment Manufacturers (OEMs). A group of insurance officials has requested the Insurance Regulatory and Development Authority of India (Irdai) to address these issues through strict action, which includes penalties. 

The Issue: High Commissions And Limited Choices

According to the Irdai definition in 2017, MISPs are automobile dealers authorized to distribute motor insurance policies. Even then, allegations of malpractice have come up. In fact, some MISPs charge commissions as high as 53 per cent for private car insurance policies. This leads to premiums, and overloading car buyers, mainly those buying insurance at the time of vehicle purchase. 

Moreover, MISPs limit car buyers’ choices by mandating insurance policies from specific insurers, usually those offering the highest commissions. While these practices suppress competition, they also withhold policyholders from accessing better or cheaper options. According to insurance experts, the policyholders are passed on high commissions as inflated premiums. In extreme cases, customers are forced into buying insurance policies recommended by MISPs, often under the threat of threat of vehicle sales being withheld. 

Advocate For Reform

To curb such practices, insurance officials and industry bodies are now calling for regulatory reforms. Their key demands include: 

Open Architecture For Insurance Offerings

Rather than selectively promoting certain policies based on commission payouts, MISPs need to display all available premium quotes from insurers. 

Real-Time Pricing Mechanisms

Can ensure competitive pricing and transparent policy offerings, by integrating customer and vehicle data with insurers’ systems in real-time.

Enhanced Regulations For MISPs: According to industry experts, under the Irdai’s purview, MISPs are classified as insurance intermediaries. Hence, this development would ensure stricter compliance with guidelines and reduce malpractices. 

Previous Regulatory Action

Irdai has taken steps in the past to penalize such practices. For instance:

In 2019, Maruti Insurance Brokers was fined Rs 3 crore for denying cashless claims to customers who chose not to purchase insurance through them.

Hero Insurance Broking faced penalties of Rs 2.18 crore for restricting customers' policy choices.

These actions underscore the regulator's intent to protect policyholders but highlight the need for stricter enforcement of MISP guidelines.

Previous Regulatory Action

To penalize such practices, Irdai has taken steps. For instance: 

In the year 2019, Maruti Insurance Brokers was fined Rs 3 crore for saying no to cashless claims from customers who decided not to purchase insurance through them. 

For restricting customers' policy choices, Hero Insurance Broking faced penalties of Rs 2.18 crore. 

General Insurance Council’s Recommendations

The General Insurance Council (GI Council) has proposed amendments to MISP guidelines, which include:

Letting policyholders to choose from five to 15 insurers.

Banning OEM-backed brokers from locking insurers out of their portals, apart from cases of service-related issues. 

Based on price and service performance ratings, presenting insurance quotes.