'Porting of motor third party insurance is customer friendly, will clean up market'


By Venkatachari Jagannathan

Chennai, Mar 30 (IANS): In order to make the motor insurance market a level playing field, the insurance regulator should make third party insurance policies portable, industry experts said.

Such a facility will also clean up the market, they added.

More than 20 years after the Indian general insurance industry was opened up, the new vehicle insurance is anti-competitive and the third party liability portion is under administrative pricing mechanism (APM), which is fixed by the government.

The Supreme Court had ruled that a new two-wheeler or a private car should have a third party liability insurance cover for five and three years, respectively.

"Third party insurance cover of three years and five years for new cars and two-wheelers, respectively, is the fall out of the Supreme Court's ruling way back in July, 2018, after considering the recommendation of the Supreme Court Committee on Road Safety," D. Varadarajan, Supreme Court advocate specialising in company/competition/insurance laws, told IANS.

"However, there arises unintended handicap for the new and not big general insurers, as they do not have established partnerships with big automotive dealerships, and buyers of automobiles are left with a few select insurers to choose from the stable of automotive dealers, and in the bargain, customers are stuck with a particular insurance company for three years or five years, as the case may be, by paying upfront TP (third party) premium for those many years," he added.

The dealers charge the vehicle owners one amount and pay the insurers a far lesser sum and pocket the difference.

"The vehicle dealer discount is as high as 70 per cent," industry officials told IANS.

"So, the dealers threaten a prospective vehicle buyer with delayed delivery and risk of bad post sales service or during any accident related repairs if he/she says insurance policy will be taken elsewhere," industry officials told IANS.

The highly profitable motor third party insurance accounts for a sizable portion of the total industry business.

In FY21, the party premium for the industry was Rs 36,530 crore, in FY20 it was Rs 36,533 crore and in FY19 Rs 31,211 crore.

"The long-term third party insurance policies should be made portable, that is, a new vehicle owner can transfer his insurance policy to his regular insurer or any insurer of his choice. The insurers can reconcile the premium and other amounts among themselves," Sohanlal Kadel, Managing Director, Kadel Insurance Broker Pvt Ltd, told IANS.

He is also the past President of the Insurance Broker Association of India.

"The motor policy should be made portable," Varun Dua, Founder and CEO of Acko General Insurance Company Ltd, told IANS.

"In the case of vehicle damage insurance or own damage portion, the policyholders are free to choose a new insurer at the end of the first year. The third party cover remains the same across insurers," Shanai Ghosh, Executive Director and CEO, Edelweiss General Insurance Company Ltd, told IANS.

She also said the incremental benefit for a policyholder due to porting is going to be limited, since the policy benefits a third party if the insured vehicle is involved in an accident and injures or kills a third party.

Agreeing with the view that risk cover and premium being uniform across the players, Kadel said: "The porting facility will also clean up the market."

"Here comes the role of IRDAI in propagating general awareness and consumer advocacy as regards all these aspects to quell the myths and consumer ignorance and mis-selling of insurance policies. It is also time for the IRDAI to consider introducing portability of TP (third party) insurance cover, so as to enable the insureds to exercise their informed choice. The dealers should also display a board conspicuously giving the details of the general insurers offering motor insurance cover," Varadarajan said.

According to him, from the Competition Law perspective, what is to be examined is whether this would give rise to aappreciable adverse effect (AAC) on competition.

He pointed out that the apex court or the IRDAI did not stipulate the lock-in for three or five years, as the case may be, for third party insurance with select insurers.

The field is open for all the general insurers giving motor insurance cover, and it is also open for the vehicle owners to choose the insurance company.

"Keeping in view the public interest to be sub-served as enunciated by the Supreme Court, and that there is no express bar on the choice of insurers for procuring the insurance policies, prima facie, in my view there is no affront to the Competition Law resulting in AAC," Varadarajan said.

He said the Competition Commission can direct an investigation into the practices at the vehicle dealership levels.

According to Varadarajan, the newly established Central Consumer Protection Authority under the Consumer Protection Act, 2019 is also endowed with the power to investigate matters relating to violation of rights of consumers, unfair trade practices and false and misleading advertisements which are prejudicial to the interests of public and consumers.

The motor third party liability premium rates are fixed by the government with regular upward revisions.

Curiously, the vehicle damage insurance portion is fixed by the individual insurers and the premium rates have come down.

  

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