IRDAI panel for separate payments of vehicle, insurance premium

Buyer of a new vehicle may have to pay cost of vehicle and insurance premium through separate cheques, if the recommendations of a committee to review MISP guidelines are accepted by the insurance regulator Irdai.

The Insurance Regulatory and Development Authority of India (Irdai) had issued MISP guidelines in 2017 with the intention of streamlining the process and bringing the practices of vehicle insurance, being sold by automotive dealers under the provisions of the Insurance Act, 1938. Motor Insurance Service Provider (MISP) refers to an automobile dealer appointed by the insurer or the insurance intermediary to distribute and/ or service motor insurance policies of automotive vehicles sold through it.

In June 2019, the regulator had set up a committee to review the MISP guidelines. The panel has submitted report in which it has made various recommendations for orderly conduct of motor insurance business through MISP channel. Among other issues, the panel examined the current practice of collecting the premium payment from the customer while soliciting the motor insurance policy. Under the present system, it said there is a lack of transparency in the cost of insurance premium when the customer buys the vehicle for the first time through the automotive dealer and makes the payment through one single cheque.

As the MISP makes payment to the insurance company from his own account, "the customer does not know the insurance premium being paid as it is subsumed in the cost of the vehicle", the committee said. It suggested that this lack of transparency is not in the interest of the policyholders' interest as the true cost of insurance is not known to the customer. "The customer may not be aware of the coverage options and discounts available in the process. The customer also cannot negotiate with the MISP to get the best coverage at the optimal price."

The committee recommended that the customer should make payment to the insurance company directly which is facilitated by the MISP. "MISP shall not collect the insurance premium amount in its own account and then transfer the same to the insurance company," it added. According to the report, the motor insurance business sourced by MISPs through brokers and insurers put together constitutes around 25 per cent of the total motor insurance business or around 11.25 per cent of the overall general insurance business. In its report, the committee said that given the potential opportunity for motor insurance business through the MISPs, there is a need to develop and strengthen regulatory framework and supervision activities for this distribution channel.

The panel has also made recommendations on the original equipment manufacturers (OEMs). It noted that OEMs wield tremendous influence over the automotive dealers. "The OEMs should be brought into the regulatory ambit. Therefore, the definition of MISP should also include OEM," the panel said. The panel also suggested that an MISP should mandatorily disclose to the customer the remuneration and reward that it gets from the insurance company or the insurance intermediary.

In case of cashless settlement, it said the MISP should necessarily segregate the two functions of sales and servicing of motor insurance policies and ensure that there is complete arms-length relationship between the two.