Small players point to problems in multi-year motor insurance policy

Smaller players in the motor insurance business have rushed to bring out in the open key differences within the industry about moving to multi-year policies, which they fear could hurt their bottom lines. Ahead of the deadline to introduce multi-year insurance policies from Saturday, the differences could cripple the most profitable segment of the general insurance industry.
Some of these companies have apparently quoted the regulator, Insurance Regulatory Development Authority of India (Irdai), supporting their position. The aggressive postures have made it difficult for the industry association, General Insurance Council, to offer a common position on the issue before the Supreme Court to defer the deadline.

The companies issued their own versions of the key minutes of a meeting the CEOs had with the sector regulator, Irdai chairman, S C Khuntia, last week. By convention, the minutes are issued by the GI Council. But some of these companies pre-empted it by bringing out their version of what happened in the meeting. The minutes often decide the companies’ business plans, so the changes carry a lot of weight.

The court has ordered the insurance industry to move to multi-year motor vehicle policies as a cure for a typical problem on Indian roads. The court observed that many road accident victims cannot claim compensation from insurance companies as the vehicles, especially commercial ones, are often not insured. 

Motor Vehicles Acts of each state make it mandatory for any vehicle to sport a third party insurance policy. With a policy around, if the vehicle is involved in an accident, injuring or killing someone, her relatives can claim compensation from the insurance company. The claim is in proportion to the loss of income from the victim. To ensure there is an insurance policy in force when the accident takes place, the court has ordered that all single-year third party policies be converted to three-year ones for cars and five-year ones for two-wheelers.

There are 21 companies in India that sell motor insurance policies. Most insurance companies tie up with motor dealers to offer insurance when customers buy their vehicles.

According to the version of smaller companies, in the meeting between the CEOs of the insurance companies the Irdai chief said, “The problem of too much dependence on OEM channel, potential increase in payouts and not having a level playing field in the interest of policyholders, channels and insurance companies was also discussed. Chairman (Khuntia) said policyholders are a silent majority in this matter and any solution should look at overall principle of fairness.”

These companies claim that there is high level of compliance by private cars (90 per cent renew their policies) the industry should not be forced to issue long-term insurance policies. The GI Council wants to take a softer tone and urge for more time, simply citing problems in quick roll out of the new insurance products. 

A company CEOs said, “We should use this chance to claim that (court) directive is not solving the compliance problem. Otherwise, we are weakening our stance saying the difficulties are just technical.”

For the non-life insurance companies the stakes from the Supreme Court order are quite high. About 47 per cent of the total business of the industry comes from motor insurance and a more than a fifth of it is generated in the automobile dealers showrooms, an Assocham report from 2016 shows.

As the table shows the industry is concerned that long-term motor Motor Insurance policies would adversely impact the customer choice, raising insurance costs by at least 6 per cent. Since insurance for a hatch back in the first year is at least ~20,000, this is a substantial additional outgo.

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