Concerned over the excess incentives insurers are paying motor dealers — leading to expensive motor policies — insurance regulator Irda has asked general insurers to bring down such incentives and instead pass on the benefits to customers in the form of low premium on policies.
Irda’s stand has been the general insurers are outsourcing a lot of their work relating to the motor insurance services from auto dealers.
Insurers pay large incentives to these dealers to push sales of motor insurance policies, making policies in the ‘own damage segment’ expensive, which is deterring customers from buying motor policies. The regulator recently convened a meeting of CEOs of general insurance companies to discuss this issue.
“Irda chairman TS Vijayan wants more people to buy motor policies as there is a large number of people who are owning automobiles but not buying policies. He made it clear that general insurers should lower the amount of to dealers and pass on such benefits to the customers which can result in a lower premium,” said the chairman of a public sector insurance company.
There are two types of insurance policies sold by the general insurers: the third party, which is mandatory and whose pricing is regulated by the Irda; the other is ‘own damage segment’ which is optional and pricing is fixed by the general insurers.
In some instances, auto dealers and companies offer zero insurance charge in the first year. However, the premium becomes high from the second year onwards.
The auto industry had witnessed a surge in sales in the last two years, making the segment lucrative business proposition for insurers.
“There’s intense competition to get business with new models hitting the streets every week. It’s almost like the zero EMI in the retail banking. A customer doesn’t know he ends up paying high insurance premium,” the chairman said.
However, the general insurers are justifying such incentives as it is allowed under the outsourcing regulations.
“If it is within the overall cap stipulated for expense management by the regulations. There shouldn’t be any problem in offering such incentives,” said the CEO of a general insurance company.