Penalize auto dealers for charging excessive commissions: Insurers to IRDAI
What's the story
A group of general insurance officials has requested the Insurance Regulatory and Development Authority of India (IRDAI), to take action against motor insurance service providers (MISPs).
MISPs are auto dealers appointed by insurers to distribute motor insurance policies of vehicles sold through them.
The MISPs are reportedly charging high commissions of up to 53% for new private car insurance policies.
The officials have also raised concerns over the restrictive practice of limiting policy options for new car buyers.
Unfair practices
Restrictive practices limit policy options for new car buyers
Some MISPs are reportedly restricting new car buyers' choice of insurers at the time of buying a vehicle.
A senior executive from a private general insurance company revealed that these entities often block insurers from their portals if they try to cut down premiums.
The executive further stated that these entities could even hold back the vehicle sale if the policyholder doesn't follow their 'advice' on insurers and policies.
Proposed solutions
Insurance companies propose solutions to enhance competition
Insurance companies are pushing IRDAI to make sure dealers and MISPs associated with automakers show all premium quotes from insurers, instead of restricting them to select insurers and policies on the basis of commission.
They propose an open architecture structure where motor dealers can partner with several insurance companies, giving customers more options.
Another solution is real-time pricing, where customer and vehicle data is shared with insurers instantly for competitive quoting.
Premium inflation
High commissions inflate premiums for new car buyers
The exorbitant high commissions taken by MISPs are resulting in inflated premiums for new car buyers.
Pranjita Barman, a partner with law firm Cyril Amarchand Mangaldas, pointed out that the forced selling of insurance policies by MISPs at their rates, makes customers pay way more premium than they would have otherwise.
For instance, an MISP may charge ₹50,000 insurance on a ₹10 lakh car, while the same policy could cost just ₹20,000 if taken from the market.
Past penalties
IRDAI has penalized MISPs for restrictive practices in the past
In an October meeting with general insurers, IRDAI officials had admitted to the problem of high commissions being paid out to MISPs on new private cars.
The regulator has previously penalized MISPs for similar malpractices.
In 2019, Maruti Insurance Brokers was fined ₹3 crore for denying cashless claims to customers who didn't buy/renew their car insurance through them.
Hero Insurance Broking was also fined ₹2.18 crore for forming its own panel of insurers, restricting policy options for policyholders.