The motor insurance industry is undergoing a shakeup with the IRDAI ending the decades-old practice of general insurance companies paying commissions under the table to automobile distributors for selling their policies.
Under the new rule, the distributors can choose to work with any number of insurance companies or brokers, but are required to license themselves as motor insurance service providers (MISPs) and be under the regulator’s supervision.
The IRDAI has capped payments by insurers to agents and dealers at 19.5% for cars and 22.5% for two-wheelers. This commission structure is applicable only to “own damage” insurance cover.
Also, vehicle dealers can provide after-sales services such as modification, cancellation, renewal and claims servicing of motor insurance policies for which they can charge a fee.
The new rule, which took effect last month, is expected to lower the claims ratio, reported Business Standard. Insurers said the move will help the industry to improve claims management and reduce expenses, which were paid earlier as outsourcing expenses in the range of 25-30%.