MUMBAI: The dynamics of motor insurance in India are set to change with the insurance regulator taking a tough stance on auto companies controlling insurance distribution through broking firms.
In December 2019 and January 2020, the Insurance Regulatory and Development Authority of India (IRDAI) penalised a host of insurance broking firms, including Maruti Insurance Brokers, Hero Insurance Broking and Toyota Tsusho Insurance Broking — all linked to auto manufacturers. The fines ranged from Rs 1 crore to Rs 3 crore. The regulator also fined brokers like SMC and Aditya Birla Insurance Brokers for their dealing with auto companies.
Insurance company officials say that fining brokers for dealing with select companies could now open up the business for two dozen companies. Customers could benefit if upstart companies start quoting low rates to get a toehold in the motor business.
In all the cases, the charge was that customers who bought new cars were being denied choice and were indirectly forced to buy from a handful of insurance companies that were empanelled with the broking firms. Another point raised by the regulator was that all the companies in the panel were offering the same rates, indicating that there was some kind of price-fixing. Third, the regulator has identified cases where insurance companies have paid more than the permissible premium by reimbursing costs
It is an open secret in the insurance industry that auto dealers control motor insurance distribution. While the customer is given a choice of companies, they are the ones which are on the panel and often the pricing is similar. The customer is free to buy the insurance from any company, but the dealer — by quoting a blended price — leads the customer to believe that he is willing to bear the insurance cost.
The court order making it mandatory for car buyers to take out a three-year cover and two-wheelers a five-year cover has put more power in the hands of the dealer.
Although the insurance distribution firms are owned by auto companies (described as OEMs, or original equipment manufacturers by the regulator), most of the earnings are passed on to dealers.
Given that the motor insurance market in India stood at over Rs 64,000 crore, the commission runs into several thousand crore (see graphic). They are a major source of revenue for the auto dealers who have to deal with thinning margins on auto sales. Besides the earning from selling insurance, dealers benefit as insured cars come back to them for cashless claims servicing and provide their workshops with assured business.