Irda wants insurers to stop giving high incentives to 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.

The Irda move has come at a time when the general insurance segment is still finding it tough to manage their operations in view of the losses in the third party liability. “The insurance industry is still losing money in the third party business. I am expecting another hike in third party premium,” said Bhargav Das Gupta,MD & CEO of ICICI Lombard General Insurance.

Consumer focus

* Irda has expressed concern over insurers paying out huge incentives to auto dealers as it is making motor policies expensive for consumers

* The regulator wants this practice to be stopped and is asking insurers to pass on these benefits in the form of lower prices on policies

* There are two types of motor insurance policies: the third party,whose price is regulated by Irda and the ‘own damage segment’ where insurers are free to price

* The ‘own damage segment’ has seen various schemes offered by dealers and insurers that have hidden charges built into them