Irdai chief Subhash Chandra Khuntia went public with the watchdogs concerns on the motor insurance service providers(MISP), wherein the quantum of commissions given by insurers is higher than the one set by the regulator for insuring private cars and two wheelers in own damage(OD) segment… 


“Whenever it is coming to our notice, we are taking action. We have also done some focused inspection of some of the service providers, we are watching the market very carefully for some violations,'' he said. adding that some insurers are incentivising car dealers in violation of MISP) guidelines. He was speaking to the reporters on the sidelines of an event organised by the Insurance Brokers Association of India(IBAI) on Thursday. 


“They should not do so as Irdai is watching them,''he said..


It is alleged that a lot of private sector general insurers are paying much higher illegal commissions through fraudelent means, while insuring the private cars and two wheelers in the OD segment, over the permitted amount as fixed by the insurance regulator IRDAI, to the MISPs, who are basically authorised dealers of  auto manufacturers.


According to the market sources, despite the fact that the pemitted quantum of commission for insuring a four wheeler, priavte cars, is fixed at 19.5 per cent of total premium a large number of unscruplours.private general insurance players, to gain market share, are paying as high 30 per cent commissions where  they are routing the extra commissions through fraudelent means.


Similarly, for insuring a two-wheeler, while the permissible level of commision is 22.5 per cent, some private sector general insurer are playing as high as 50 per  cent to corner larger business.


Almost all the private sector general insurance players except SBI General Insurnace, have adopted this illegal way of doing Motor OD business. It has severly put the four public sector general insurers at disadvantage, who are not able to do any malpractices and consequently losing business,sources.


All the four companies, New India Assurance(NIA), United India Insurance(UII), National Insurance Company and Oriental Insurance Company(OIC) have registered negative growth on motor OD segment during the quarter ended in Dec 2018.


In fact, IRDAI in Nov 2017, in a bid to bring  some order in the chaotic motor insurnace market, had completely revamped the system in motor OD business by specifying the commission to be paid to the authorised dealers and allowing authorised dealers to deal with all the general insurers. However, even the new system is now getting abused by some general insurers putting the motor market under pressure and warrant IRDAI's actions, said analysts. 


Furthrer,replying to a question, Khuntia said the regulator is speaking with the GST Council to lower tax on property insurance in vulnerable areas. 

Khuntia also said that the insurance companies will have to make provisions for their exposure to the crippled infra lender IL&FS.. 


The IL&FS group with a debt of over Rs 94,000 crore, has been defaulting on its financial obligations since August and has also borrowed from insurance companies, even though the exact exposure of the industry is not immediately known. 

Exposure to IL&FS cannot be written off; they will have to make provisions,he said  without offering any specifics. 

In the speech, he asked the insurance industry intermediaries to ensure that their conduct is ethical and pitched for self-regulation in this aspect. 

He said mis-selling continues to be rampant in the industry and also called for a shift in practices to ensure that claims get settled quickly and more time is taken for underwriting and selling. 


Khuntia said cyber security insurance will be a big opportunity going forward and asked the industry to hone their skills on underwriting and claim settlement, saying this is a niche area which needs specialisation. 

He said the position of a broker is very crucial as he/she has to take care of both the needs of the customers as well as that of the company. 

It only gets complicated because the broker is paid by the insurance company, he said, underlining that a customers position should also be considered important.