A recent move by the Insurance and Regulatory Authority of India (IRDAI) has capped the distribution fees payable to motor insurance service providers (MISP) at 22.5% for two-wheelers and 19.5% for four-wheelers and sport utility vehicles (SUVs). This has led to many general insurers considering risk-based pricing, industry players say.
Guidelines have also transformed auto dealers into MISPs and industry officials believe that despite the reduction in the MISP commission, from the earlier range of 25-30% across segments, the premiums won’t be affected much.
The head of sales and distribution of a major general insurance player, says, “If we talk in terms of premiums, it is likely that the industry might move towards risk-based pricing. Until now, premiums were largely formula-based across the country, but now we might witness premiums going down in a region where the loss ratio is less for customers who drive safely; while there might be some increase in places where loss ratios are higher.”
However, the above mentioned commission structure is only for the own damage premium of a package motor insurance policy, which usually consists of two parts – third party premium and own damage premium.
Unlike before, MISPs can now tie up with any number of general insurance companies and offer customers a choice between them and their various premium rates. Adding further, the distribution head says, “With MISP in force for almost a month now, it helped automobile dealers to become part of the regulatory framework and lots of transparency has come in the entire approach to distribute motor insurance through this channel. Health insurance companies will have a fair and transparent system and uniformity in the whole process as well.”
MISPs can now also provide after-sales services of the motor insurance policies they sell, for which they can charge a fee. These include modification, cancellation, renewal and claims servicing. Moreover, insurance companies can now appoint MISPs or insurance intermediaries to distribute and service policies. And, the insurance industry believes that insurance costs will come down in future, with the capping of distribution fees.
Source: Business Standard
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