In a major blow to insurance agents and brokers, IRDAI has clarified that insurance companies can only issue long-term motor insurance policies having at least 5-year cover for new two wheelers and 3-year cover for new four wheelers.
The move will affect insurance agents and brokers and benefit automobile dealers having distribution license. Firstly, such policies are not applicable for the existing vehicles due for renewals. Also, such policyholders will approach intermediaries only after three years and five years to renew their cars and two wheelers respectively.
In a recent circular, IRDAI clarified, “All general Insurers shall offer three-year motor third party insurance cover for new cars and five-year motor third party insurance policies for new two-wheelers. Further, long-term motor product permitted shall be offered only to new private cars and new two-wheelers. These products shall not be offered for renewal of existing policies or for old vehicles.”
It is pertinent to mention here that in 2017, IRDAI introduced a new distribution channel called Motor Insurance Service Provider (MISP) to increase the sales of motor insurance policies. This made it possible for insurance companies to appoint automobile dealers as their intermediaries to distribute motor insurance policies.
Typically, MISPs get higher commission than agents and brokers. Insurance companies pay up to 22.5% of total premium as the commission in 2 wheelers and 19.5% of the total premium for other vehicles such as cars and SUVs. Also, these dealers can provide post sales services like modification, cancellation, renewal and claims servicing of motor insurance policies for which they can charge a fee. In addition, just like insurance brokers, an MISP can work for multiple insurers.
Currently, general insurance companies can pay up to 15% of the premium as commission on comprehensive motor insurance policies to agents and brokers.
Note that the 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. Also, the given commission structure is applicable on one year motor insurance policies.
Before September 2017, many automobile dealers were selling motor insurance policies either through third party brokers or by floating an insurance broking company. In fact, a few automobile dealers were selling motor insurance policies by acquiring agency license in the name of their family members.
Commission structure of long-term motor insurance policies
On commission structure of MISPs, IRDAI has clarified that insurance intermediaries can get up to 17.5% of the first year premium of five-year two wheelers comprehensive motor insurance policies.
Similarly, general insurance can pay up to 10% commission on the second and third year premium and 5% commission on fourth and fifth year premium of the policy.
In case of three-year motor insurance comprehensive policy of four wheelers, IRDAI has capped first year commission at 15% on own damage cover. Subsequently, non-life insurers can pay up to 10% and 5% of commission on second year and third year premiums respectively.
On bundled policies, intermediaries can get up to 17.5% and 15% commission on five-year bundled policy for two wheelers and 3-year bundled policy for four wheelers, respectively.
Remember that there will be no commission on third party motor insurance cover for both 5-year two wheelers and 3-year four wheelers. IRDAI has also asked insurance companies to incentivize these distributors with up to 30% of commissions as reward.
Insurers can distributors these long-term motor insurance policies
- 5-year third party insurance for two wheelers
- 3-year third party insurance for four wheelers
- 5-year comprehensive policy that comprises own damage cover for two wheelers
- 3-year comprehensive policy for four wheelers with own damage cover
- Bundled policy with 1-year comprehensive and 5-year third party cover for two wheelers
- Bundled policy with 1-year comprehensive and 3-year third party cover for four wheelers
Though policyholders can decide if they want to go for one-year motor insurance policy or long term motor insurance policy, most MISPs are likely to push vehicle buyers to go for long-term policies, said experts.