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Insurance Article

What Impact Will Motor-Dealer Regulation Have on Customers?

November 17 2017
Motor Insurance Policies through Automobile Dealers

In a move to offer customers more choices and stimulate transparency, IRDAI allows all insurers to sell motor policies through automobile dealers

The Insurance Regulatory and Development Authority of India (IRDAI) has recently allowed all general insurance companies to sell motor-cover policies through automobile dealers. With this move, the regulator has boosted competition among insurers to offer the best price to customers. Also, by offering differential pricing, they will be able to reward good customers and ensure higher premium for bad ones.

Under this regulation, auto dealers who distribute car insurance policies to their customers, will become Motor Insurance Service Providers (MISPs). They will need to licence themselves with the IRDAI, to be eligible to sell insurance, now with a regulatory supervision. In addition to recognising the role of auto dealers in distribution and servicing of motor policies, this decision brings a win-win scenario for all stakeholders.

More Choices, Better Price for Customers

The IRDAI’s regulation opens up a vast choice of insurers for the customer. Earlier, it was mandatory for the customer to buy a car insurance policy from an insurer with whom the automobile dealer already has an exclusive arrangement. Now, that the customer has a list of insurers to choose from, they can derive a better price given the competition.

Further with differential pricing, customers stand a chance to be rewarded if they have a good driving record. It will be also easier for them to avail cashless services, as dealers will not discriminate between policyholders who have bought motor insurance through them or otherwise.

Recognition of Dealers as MISPs

With this move, the IRDAI recognises auto dealers and their role as motor insurance service providers, even though they have been doing this job for long. By bringing them under its purview, the regulator has allowed more liberty to the dealers to work with motor insurers, and legalised their revenue generated from the stream.

The automobile dealers shall be entitled to a higher commission from the insurer, being 19.5 percent for own damage cover in motor car insurance. With the ability to competitively price their offerings and valuable aftersales services, the dealers would experience better customer retention. They get a boost in their income as well as higher customer loyalty.

More Dynamism for Insurers

The regulation streamlines the entire channel for general insurance companies. Those insurers that are not a part of auto dealer networks, also get to sell their policies to the latter’s customers. This will lead to a substantial decline in their actual cost of acquisition (COA), in turn, reducing their combined operating ratio (COR), ultimately benefitting the end-user.

There are no compliance issues as far as working with auto dealers is concerned. MISPs are permitted to work purely on issuance of appointment letter from an insurance company. The legalisation of the new commission structure also eliminates any scope for violation. Insurers can now use underwriting principles to reward good customers.

Incentive for Intermediaries

The intermediaries can continue to provide a common interface and overall logistical support, by acting as the link between insurance companies and MISPs. They would be the primary source of technical guidance and support for the MISPs. With adequate services, they can justify the charge they would negotiate to retain, before passing the revenue from the insurer to the auto dealer.

The IRDAI’s regulation will bring better transparency into the whole system. When coupled with the automated process of policy issuance and claims settlement, this will make the environment more conducive. Dealers engaged in selling car insurance will bring security in transactions and better customer service by treating everyone fairly. The customer, finally, is benefitted with the choice to avail the service at the best price.

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