Summary of this article
New car buyers may get digital insurance options
Motor dealers could face tighter distribution rules
IRDAI proposes changes to motor insurance commissions
Buying insurance for a new car could become more transparent and digital if the latest proposals from the Insurance Regulatory and Development Authority of India (IRDAI) are implemented. The regulator has proposed changes to the way motor insurance is distributed, including giving new-vehicle buyers a clearer option to purchase policies through digital platforms. It has also suggested tighter rules for motor dealers and lower commissions for a select few motor insurance products.
The proposals are part of IRDAI’s consultation paper on reforms to the economics of insurance distribution. The regulator has highlighted a sharp rise in motor insurance commissions recorded in the past few years, according to a report by Livemint. While motor insurance premiums have increased by around 34 per cent between FY23 and FY25, commissions have risen by about 259 per cent.
Digital option for buying motor insurance
One of the key proposals could give new car buyers a greater choice over where they purchase their insurance. IRDAI has proposed that motor insurance products for both new and existing vehicles should be made available on Market Infrastructure (MII) platforms; this includes Bima Sugam.
Under the proposed framework, motor dealers operating as insurance distribution entities or Points of Sale Persons would have to prominently inform new-vehicle buyers about the digital purchase option. Dealers would also have to display a QR code that allows customers to access the relevant platform. This setup can make it much easier for buyers to compare their options and purchase motor insurance that stands outside the dealership’s existing distribution arrangement.
Dealers could face tighter rules
IRDAI has proposed a clearer and more defined framework for motor dealers that sell insurance. Dealers meeting the proposed requirements would need to register as Insurance Distribution Entities if they want to sell insurance. Such entities could distribute products from multiple insurers. Dealers that do not qualify for this structure could operate as a Point of Sale Person of an Insurance Distribution Entity, or just associate themselves with a single insurer.
The regulator has also proposed restrictions on arrangements between motor dealers, original equipment manufacturers and insurance distributors where such arrangements could work against policyholders’ interests. This includes certain service level agreements and performance-linked incentives linked to insurance sales.
Another major proposal concerns cashless repair services. Under the proposed rules, a motor dealer acting as an IDE ot PoSP should not deny cashless repair facilities merely because the customer purchases the major insurance policy elsewhere. This gives vehicle owners much greater flexibility in choosing their insurer without automatically affecting access to cashless repair services at participating dealerships.
IRDAI has also proposed reducing the commissions for mandatory third-party motor insurance and other motor insurance products considered relatively easy to sell. According to the regulator, the average commission on third-party motor insurance increased from 4.3 per cent in FY23 to 22 per cent in FY25. For new vehicles, IRDAI has classified third-party insurance as a nil-effort product, as proof of insurance is required for vehicle registration.
For customers, the most visible change could be a formal digital route to purchase motor insurance when they are buying a new vehicle. These changes and proposals are not final rules. IRDAI has invited stakeholder comments before they finalise anything.
