The IRDAI has imposed penalties amounting to crores on India’s biggest insurance brokers like Maruti insurance Brokers Pvt Limited (MIBL), Hero Insurance Broking India HIBIL& Aditya Birla insurance brokers for violation of various regulatory norms. The toyta & Honda’s broking arms have also been fined. The IRDAI has found them in violation of the Motor Insurance Service Provider (MISP) guidelines on various counts, including the one related to empanelment of general insurers. The charges of violations are almost of similar nature for all the brokers but here we are going though the case of MIBL for the purpose general knowledge of the consumer.
Guidelines on Motor insurance Service Provider
The objective of these guidelines was to recognize the role of automotive dealer in distributing and servicing motor insurance policies to have regulatory oversight over their activities connected to insurance.
The Authority categorically clarified that neither the insurance broker nor the MISP can create such a panel of insurers for re-selling motor insurance policies. lt was also categorically stated in the same circular that no MISP or the insurance intermediary can enter into an agreement with an Original Equipment Manufacturer (OEM) which has an influence or bearing on the sale of motor insurance policies.
The IRDA was receiving complaints from various quarters about the violation of the MISP norms by Maruti & other big insurance brokers which consisted the following points.
Complaints:
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.
d.) Some General insurance Agents Association also complained to the Authority of the apparent conflict of interest in the role of MISP in selling insurance policies and servicing & repairing motor vehicles on the insurance policies sold by it. They also highlighted the high claims ratio under the MISP channel, extra payments made to MISP by insurers, disparity of treatment to agents, etc.
e.). The Authority also received complaints from insurers that insurance intermediaries have created a panel of insurers which is in violation of Guidelines on Motor lnsurance Service providers.
After the complaints received from the various quarters like web aggregators, insurance agent association & general public the following charges were framed.
Charge 1
The Authority is in receipt of complaints/ representations from some general insurers stating that they are willing to enter into a service level agreement with MIBL based on transparent and objective criteria. However, despite the insurance company having made many requests to MIBL for empaneling them, MIBL have neither responded nor empaneled them for selling motor insurance policies through their MISP’s.
Charge 2
The Authority vide its letter ref no. IRDA/ DB 475-101 2018 dated 27th November, 2018 forwarded a complaint from Mr.Prashant Mahtre on violation of the guidelines by MIBL by offering discount on labour and interior cleaning, thereby inducing the customer toinsure/ renew their car insurance with Maruti insurance Broker Limited which is a violation of Section 41 of the insurance Act, 1938 and the MISP Guidelines. The letter also carried attachment showing the customer savings when vehicle is insured through Maruti lnsurance Broking Limited and other wise. One of the advantages cited in the attachment is the cashless facility offered to the customer when going through the Maruti lnsurance broker sponsored MlSP.
Further the Authority received complaints from customers of Policybazaar lnsurance Web Aggregator Pvt Ltd that customers who are purchasing insurance policies through the web aggregator’s web-site are being denied the facility of cashless claims if the motor insurance policy has not been purchased through MIBL or through MISP’s sponsored by MIBL.
Also There is elaborate methodology of rewarding the dealer for retaining the insurance policies issued through him whereas as per guidelines the insurance intermediary can enter into an agreement with the OEM which has an influence or bearing on the sale of motor insurance policy.
Charge 3
a) MIBL vide letter dated 10.9.2018 has submitted a chart of the premium quoted by insurers in different geographies which are charged to the customers by insurers who are on MlBL panel. lt shows that the premium being charged to the customer of different insurers is the same.
On examining the submissions made by MIBL vis-a-vis the information/ clarification sought, it was observed that MIBL had not complied with the applicable provisions of the Authority’s Regulations/ guidelines/ circulars, so some penalties amounting to Rs. 3 crore were imposed.
Directives of the IRDA:
The Authority directed the MIBL to undertake the following changes:
a) Dismantle panel of insurers and empanel all insurers on platform, have full integration with insurers computer systems, ensure premiums quoted to customers come directly from insurer systems without any intervention by the broker and report compliance within 2 months from the date of order. ln case any insurer does not wish to be part of the panel, the CEO of the general insurance company shall confirm the same in writing to the broker.
b) Redesign the current system of seeking customer consent for purchasing the motor insurance policy in such a manner that the customer exercise choice of selecting the insurer through an OTP based system at the time of issuance of a new motor insurance
policy or its renewal. The broker company shall complete the task in 6 months from the date of order and report compliance.
c) submit a quarterly audit report from DlSA / CISA certified auditor that the electronic platform / portal complies with the requirements of the MISP guidelines and in no way interferes or places restrictions in the premium to be charged by insurers or in any way restricts / influences the choice of the customer.
d) ensure compliance of Guideline 5(0 of the MISP guidelines and circular dated 1’t November, 2017 and 11th January,2018 and report compliance. MIlBL is required to explain to the customer the degree of choice on the products that are on offer, provide comparison in terms of price, cover or service. By not explaining to the customer the degree of choice on the products are on offer, providing the customer a comparison in terms of price, cover or service
Fining brokers for dealing with select companies could now open up the business for other companies. Customers could benefit if new entrant 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 with higher premium rates than the open market rates of the same companies indicating that there was some kind of price-fixing to obtain higher commission & other benefits.
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.
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. 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. And even there, cost of repair charged is much much higher than the general multi brand workshops.
Probable Impact ?
As per opinion of the knowledgeable industry sources, the guidelines can result in the following changes in market dynamics.
1.Free insurance: Free insurance schemes with purchase of vehicle may go.
2. Empanel all insurers: There can be no preferred insurers of the broker or their MISP/dealer as they have to empanel all the insurers & take them on their platform.
It may reduce the undue pressure on the insurers for unwarranted favors & result in reduced lower claim ratio.
3. No influence on choice of customer: No allurement in shape of discounting in washing/cleaning & labor discounts to influence the customer to buy the insurance policy from dealer’s preferred insurers.
It will allow the client to choose the insurer offering better rates, coverage & service.
4. Cashless facility for all: MIIBL/Misp cannot create difference between the customers & has to offer cashless facility to all the customers even if they have bought policy from someone else.
This is said to be the biggest blackmail tactics by the MISP to force the client to buy from his preferred insurer. And if the guideline can be implemented strictly, the overall industry losses in motor insurance will reduce. It can be helpful in reduced premium rates for consumer & lower ICR for the insurers.
5. Premium rate comparison mechanism: Broker Misp/dealer has to develop the premium rate comparison site like policy bazar to enable the client to check the rates offered by all the 25 insurers in the market
6. Premium rates to fall: In all tie-up business, the premium charged from the client was same for all insurers but will vary now as all insurers will quote discount offered on the basic rate & client will have the choice to opt for the lowest rate.
Previously insured with tie-up dealer was being charged high premium whereas the policy from the other agent in the market was much cheaper. So insured to benefit.
7. Gross premium income may fall: With the reduction in premium rates, the premiums income of tie-up insurers will fall down.
8. Auto dealer commission income to fall: Since the the commission is offered as some fixed % of the the amount of premium & with fall in premium, the payout to dealer will automatically reduce.
9. Extra incentives for MISP may reduce: As per iRDA guidelines There is fixed commission structure for the brokers & auto dealers procuring business for the insurers but it was the grouse of the public sector insurers that the pvt players offer some extra incentives in various forms to get preferential treatment while selling the policy to their client.
Now with application of transparency & other restrictions, as well as the availability of information to client, of insurers offering lower rates, the chance of forcible or manipulative sale will reduce considerably benefiting the public sector insurers.
As per their rules & regulation, the public sector cannot indulge in under-hand payouts to dealer but now they can offer more discount on the premium rates to client thus procure high market share of the premium income.
All the readers are requested to go through the the detailed orders linked hereunder & send their valuable inputs to update the article.
IRDA orders to Maruti Insurance Brokers
IRDA orders to Hero Insurance Brokers
J.D.Batta-surveyor & Loss Assessor
Admin-Claim Hub, Chandigarh