Motor insurers seek third-party premium deregulation, end to knock-for-knock pacts

MUMBAI: Motor insurance industry representatives urged the Insurance Regulatory and Development Authority of India (IRDAI) to deregulate third-party premiums, scrap knock-for-knock agreements between insurers and introduce named-driver policies, arguing that commission caps alone may not bring down distribution costs.

In responses to the regulator's consultation paper on insurance distribution reforms, some industry participants said automobile manufacturers and dealers influence commissions, discounting and repair costs, which could blunt the impact of the proposed curbs on intermediary remuneration, according to people aware of the matter.

Dealer commissions were capped at 10% prior to 2017, but insurers also paid additional amounts through overriders and marketing costs, one submission said. Dealers may remain largely unaffected by the proposed 5% cap on certain motor insurance commissions if they recover the difference through higher repair bills, it said, pointing to similar practices after the 2017 guidelines.


One feedback said that the regulator should address the underlying economics of motor insurance, particularly third-party pricing, rather than focus only on distribution pay-outs.

"Insurers should be allowed to price third-party premiums based on risk," said the chief executive of a large general insurance company. "This will allow insurers to price high-risk cover at risk-appropriate prices," he said.

This executive proposed fully deregulating third-party motor insurance premiums, allowing insurers to price policies according to risk, as they do for own-damage cover. A provision under the Motor Vehicles Act envisaged standard premiums covering third-party liability up to Rs 10 lakh, with additional premiums for higher liabilities, but was never implemented.

Another feedback is to end the knock-for-knock agreements, under which insurers settle own-damage claims with their policyholders without seeking recovery from the insurer of the party at fault. Scrapping these arrangements would allow motor policyholders whose vehicles are damaged by another driver to claim repair costs under the at-fault party's third-party property-damage cover, the submission said.

The change could increase claim sizes and make underwriting more complex. The General Insurance Council could frame common rules for determining fault and resolving disputes, including through online police reports and surveyor assessments, one feedback said, according to the people ET spoke with.

Another proposal is to introduce named-driver policies, linking insurance cover to specified drivers while allowing customers to opt for unnamed-driver cover at a higher premium. This could discourage unauthorised driving.