India’s insurance regulator in a meeting with top executives from non-life insurance companies on Monday expressed concerns over high commission payouts to motor insurance service providers (MISP) in the ‘motor own damage’ segment.
The Insurance Regulatory and Development Authority of India (Irdai) presented data showing that commissions paid by insurers to MISPs for new private car insurance policies ranged from 25% to 57%.
The meeting was to discuss industry issues.
India’s automotive industry, which accounts for 7.1% of the nation’s GDP, has boosted the growth of motor insurance. This sector now represents around 45% of the total business of general insurance companies. Car dealers, as primary intermediaries in the customer purchasing journey, have become a critical distribution channel for motor insurance.
Executives who attended the meeting said the regulator was particularly concerned about the excessive commission payouts to MISPs, which are seen as inflating the cost of motor insurance for customers.
“These payouts often lead to higher premiums for customers, as insurers pass on the additional costs,” said an executive. “By reining in excessive commissions, Irdai hopes to ensure that the benefits are passed on to customers.”
At the meeting, the regulator said Bima Sugam could reduce these commission rates and help pass on savings to policyholders. Bima Sugam is a comprehensive digital marketplace for insurance policies. Slated to debut in April 2025, this platform will serve as an ecommerce hub where customers can access offerings from multiple insurers, promoting competition and transparency.
In the past, there have been complaints regarding MISPs coercing customers into buying specific insurance policies at marked-up prices. In some instances, dealers have reportedly refused to complete vehicle sales unless customers purchased insurance through their affiliated MISPs. While customers have the right to buy insurance from any provider, such high-pressure tactics have raised red flags for the regulator.
In 2019, Irdai set up a committee to review MISP guidelines, following complaints of malpractice. The committee’s findings, submitted in January 2021, found that MISPs failed to offer customers a choice of motor insurance policies from different insurers leading to stricter oversight.
In the past, the regulator has taken punitive action in such cases. The regulator fined Maruti Insurance Broking INR 3 crore after it was found that the company was denying cashless claims to policyholders who opted not to purchase insurance from MISPs linked to Maruti. Similarly, the regulator had penalised Hero Insurance Broking and Toyota Tsusho Insurance Broker for violating MISP guidelines.
