In order to increase policy renewals, IRDAI has proposed to hike commissions on motor insurance policies from third year of renewal.
In a draft circular, the insurance regulator has proposed commission payouts of motor insurance policies at 10% of annual premium for the first two years and 15% of the annual premium thereafter. Currently, general insurers can pay up to 10% as commission on motor insurance policies.
Though third-party motor insurance policy is mandatory in India, only a few vehicles are insured. Recently, at a launch of e-Vahan Bima, an electronic motor insurance policy, at Hyderabad, Telangana government revealed that out of 84 lakh vehicle in the state only 50% vehicles are insured.
Non-life insurance companies, particularly, private insurers are reluctant to issue third party motor insurance. They tend to push comprehensive own damage cover to policyholders. Motor third party insurance cover is a loss making business for non-life insurers due to unsustainable premium tariff.
A Mumbai based financial advisor believes that higher commissions in the subsequent years can help the general insurance industry as it would ensure higher renewal rate.
However, a few officials have a different view, K.G. Krishnamoorthy Rao, CEO, Future Generali General Insurance says that the proposal to increase commission in motor insurance may not be viable for non-life insurers. He said, “Motor insurance segment accounts for over 40% of non-life business. The gap between premium receipts and claims are widening day by day. There is no scope for bearing additional expense in this segment.”
Meanwhile, the insurance regulator has changed the commission structure in some general insurance products like fire and marine insurance. While IRDAI has increased commission structure in fire insurance segment from up to 12.5% of annual premium to 15% of annual premium, the commission payouts in marine insurance policies are set to go down from 15% of annual premium to 10% of annual premium.
The commission structure of miscellaneous policies (retail and group) will remain unchanged. The commission payouts from all these policies will continue to be up to 15% of annual premium.
