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Journalism of Courage
Despite concerns raised by the Insurance Regulatory and Development Authority of India (IRDAI), private sector general insurers reported a 239 per cent jump in commission expenses in the motor insurance segment in fiscal ended March 2024. Interestingly, private insurers lagged behind public sector counterparts with a low claims ratio.
Private insurers shelled out a whopping `16,578 crore to motor insurance service providers (MISPs) as commission during the fiscal ended March 2024 as against `4,890 crore in FY2023 while securing fresh businesses. Interestingly, public sector insurers kept away from the ‘commission game’ and reported only 31.59 per cent rise in commission expenses at `3,099 crore in FY2024 as against `2,355 crore in FY2023, according to the Annual Report of the IRDAI.
When it comes to incurred claims ratio, public sector insurers led with 99.57 per cent while private players were far behind with a figure of 73.30 per cent, according to the IRDAI report.
Incurred claim ratio refers to the total claim amount paid by the insurance company in ratio to the total premium amount collected in a financial year. For instance, if the incurred claim ratio of an insurance provider is 75 per cent, then it means that the insurer pays `75 towards claim payment for every `100 of premium collected and the remaining `25 is considered as profit for the insurance company.
Meanwhile, earlier this year, IRDAI had repealed its guidelines capping the commission for long-term motor insurance policies, aligning these policies with the standard one-year motor insurance policies. Insurers can now offer commissions within the expense of management for long-term policies. Total commission expenses incurred by private players for all categories, including health, motor, marine and fire, were at `26,235 crore in FY24 as against `10,192 crore. PSU players’ expenses were at`7,359 crore (`6,340 crore).
MISPs were reportedly charging high commissions of over 50 per cent for new private car insurance policies. What is significant is that high commission to MISPs will inflate the insurance premium being paid by the car buyers. If an MISP charge `45,000 insurance on a `12 lakh car, the same policy could cost just Rs 20,000 if taken from the market.
One MISP was fined `3 crore for denying cashless claims to customers who didn’t buy/renew their car insurance through them. IRDAI had recently expressed concern over high commission paid to MISPs during a meeting with officials of non-life insurance companies.
Car buyers have been complaining about MISPs pushing them to purchase specific policies at inflated prices.
The issue has raised regulatory concerns, as some dealers have been pushing vehicle sales along with the purchase of insurance from affiliated MISPs, thereby denying customers their right to choose their insurers. The Bima Sugam platform promises to change this landscape by facilitating a comprehensive digital marketplace where customers can compare offerings from various insurers.
By promoting competition and transparency, Bima Sugam is expected to lower commission rates, ultimately leading to savings for policyholders. With its launch imminent, the platform is poised to revolutionise the insurance industry, empowering consumers and fostering a more competitive market.
