In order to increase policy renewals, IRDAI has proposed to hike commissions on motor insurance policies on renewal.
In a draft circular, the insurance regulator has proposed commission payouts on motor third party insurance component of comprehensive policy from the fourth year of renewal. Currently, general insurance companies can pay up 15% of the premium as commission on comprehensive motor insurance policies. However, this commission structure is applicable only on premium charged towards ‘own damage’. Premium of comprehensive motor insurance policies has two components – third party and own damage.
The insurance regulator has proposed to introduce commissions in third party motor insurance too. IRDAI has kept commissions under such policies at 2.5% of annual premium from fourth year of renewal.
Sharing the rationale behind allowing commission payout from the fourth year of renewal, IRDAI said, “Since most of the motor comprehensive insurance policies are sold at the time of purchase of the automobile, there is not much effort involved in marketing them. In order to bring consistency and to balance the efforts with the earnings, a commission/ remuneration of 2.5% on motor third party of the motor (comprehensive) policy may be permitted from the fourth year of registration.”
So far, there were no commissions on third party motor insurance. However, many insurance companies were reportedly paying a flat fee of Rs. 150 to help distributors recover client acquisition costs.
In addition, the insurance regulator has proposed to hike commission payout in two wheeler motor insurance policies from 15% to 17.5% of the premium. “It is well known that the two wheeler segment in the country is largely under-insured. Since the premium for the two wheelers is less, the commission/ remuneration payable is even lesser. So the insurance agents/ insurance intermediaries are not inclined to solicit them as the costs of solicitation are not remunerative. As a result, most of the two-wheelers do not have insurance. This impacts the claims experience as the claims get distributed over lesser number of two-wheeler vehicles. In order to improve insurance coverage of these two wheelers, it may be desirable to pay slightly higher commissions remuneration to insurance agents or insurance intermediaries for this category of automotive vehicles,” said IRDAI.
General insurance companies claim that they make loss in motor insurance policies due to unsustainable premium tariff. They say that the gap between premium receipts and claims is widening day by day and there is no scope for bearing additional expense in this segment.
It will be interesting to see how general insurance companies respond to these proposals.
The insurance regulator has asked for feedback from stakeholders by August 9, 2017.
