In your interest.
Online Personal Finance Magazine
No beating about the bush.
There can be enormous difference in the insurer-authorized service centre estimation as compared to the roadside repair shops. Is it justified? Are insurance companies being fleeced which means you end-up with higher premium?
Imagine an ICICI Lombard-authorized service centre giving quote of Rs44,390 for labour and parts when you could have roadside shop fix your Honda City for only Rs5,000. It happened for one customer and hence it leads to the question whether insurance companies are ripped off by service centres they have tied up with? If so, are you paying extra premium to compensate for the profits made by the service centres? We know of some hospitals overcharging when you declare that you have a health insurance policy. If your car needs treatment, why should you expect authorized service centres behave anything different than hospitals?
ICICI Lombard did defend its position. According to Shankar Nath, Head- Direct Channel and Marketing, ICICI Lombard, “We did visit the service centre. As per them, the bumper, both tail lights and boot lock needed replacement. Repair of some panels, painting of all repaired and replaced parts and other miscellaneous work was mentioned. We could have assessed whether all of this was required or not by surveying the vehicle. Claims are approved and settled only as per policy terms and recommendation of the surveyor, and not solely on the basis of an estimate from a service centre. We did not receive any claim intimation for the said accident. In the absence of claim documents or photographs of the damaged vehicle, it is not possible to comment on what would be the cost of repair.”
Mr Nath explained the factors which affect the cost of repairs. He says, “The cost of repair depends on factors such as:
i) whether parts are replaced or repaired (which, in turn, depends on the recommendation of surveyor considering the actual damage, roadworthiness of the vehicle after depreciation)
ii) labour cost; and
iii) parts used while repair of the vehicle (whether locally manufactured or of authorized manufacturer, to ensure safety of the occupants of the vehicle).”
Do you replace or repair? Mr Nath adds, “In several instances we find that replacements can be avoided, thus bringing down the overall estimate. We also get discounts on the standard rates to minimize the claims cost. But we could not do any of that assessment in this case as the insured went ahead with the repairs without any claim intimation to us. I would like to assure you that we have robust internal systems for identifying and eliminating frauds in the claims process.”
It is worth getting a view from dealer service centre to know more about the working of a surveyor in this industry. According to senior official from a leading dealer service centre, “The main job of an insurance company surveyor is to check the veracity of the case. Whether it is accident damage or breakdown and to check if damage corresponds to the description in claims form? In few cases the surveyor will dispute the service centre for its estimate on car repair. This is because when the insurance company chooses the service centre for a tie-up after its verifications, there is an understanding on the levels of service.” If true, it is possible that the surveyor in the above case may not have really reduced the estimate.
Go with service centre or roadside shop? He adds, “There is huge difference in the approach of dealer service centre and roadside shop. A service centre has to work as per certain conditions, which ensures that the car’s problem is not temporarily fixed. The roadside shop does not care if the same problem arises again. It is like difference between eating at a good restaurant versus at roadside vendor. Service centres do have tendency to replace parts instead of repair, but it is about providing high service standards for customer satisfaction with quality work. Today, no one wants repairs. How many repair a laptop? They replace the bad part. Most foreign manufacturers do not believe in repair. Manufacturers make money on parts replacement, not service centres.” The reality is that service centres also have profit margin on parts.
Here is a view from KN Murali, head of motor insurance at Bharti AXA General Insurance, which is in line with feedback from ICICI Lombard:
The customer has the choice to leave his vehicle for repairs with any service centre. At Bharti AXA, we are concerned about the safety of the insured person and are focused on quality of repairs and genuineness of spare parts replaced. We are particular that post repairs the vehicle should be roadworthy and should not be cause for any other accident in future.
It would be difficult to generalize that all authorized service centre unnecessarily inflate the quote. There may be a one-off situation where an authorized service centre artificially inflated the repair cost. We have competent surveyors in our organization who will be in a position to find out the actual repair cost. We invest in training to understand latest trends/costs in repairs of different vehicles. We bank on the competence or expertise of our surveyors who would save us from paying inflated repairs bill.
The customer is benefited in the short and long run if the claim outgo is controlled. There is an element of depreciation in every accident claim; depreciation is dependent on the age of the vehicle and the type of parts. Higher the cost of spare parts, the customer has to pay a higher amount from his pocket. Insurers might charge a higher premium from the customer at the time of renewal if the actual claim outgo is far higher.
The example that you quoted will arise when repairer might insist on “replacement of a spare part” than repair the component. Unless the damages are extensive and cannot be repaired effectively, it is not worth to go for replacement for all the parties concerned.
a. Repairer has “profit margin” on spare parts and that could be reason to insist on replacement. However, if the service centre is assured of margin in body shop labour charges, many service centre accept the proposal to repair the component.
b. Customer does not have to bear the ‘depreciation’ portion.
c. Insurer’s ultimate outgo is also restricted.
That would be win-win situation for all the parties—service centre, customer and insurer. Convincing repairer and the client would help us to wriggle out of such situations.
To conclude, the insured will have to be wary of the estimate given by the service centre. It is better to get a final estimation after the surveyor has made an evaluation of the damage. If you think it is high and you end up paying high depreciation amount for the replaced component, it will be worth checking if the roadside shop can do the needful with fraction of the money. This way for small claims, your no-claim-bonus (NCB) will not be affected. If there is a genuine need for a service centre to work on your car, do not hesitate. You got the car insurance ‘Own damage’ cover for this very purpose. Let the insurance company worry if they are getting fleeced by service centres.
IRDA has penalised Birla Sun Life Insurance Company a paltry Rs6 lakh for a slew of violations, some serious including using unlicensed entities to sell insurance
The Insurance Regulatory Development Authority (IRDA) had detected 22 irregularities in the functioning of Birla Sun Life Insurance Company (BSLI) but penalised it a paltry Rs6 lakh for two of the violations. What is most pertinent is that it took the regulator around a year and a half, from the date of its first inspection letter (22 November 2010), to pass the judgement (13 April 2012).
IRDA levied Rs5 lakh for a major violation of using unlicensed entities to solicit insurance business, thus violating an IRDA circular which states, “No insurer shall distribute the product through any person who is not licensed as per the provisions of the Insurance Act, 1938, for the purpose of the soliciting and procuring insurance business.”
BSLI admitted to this misdeed but was fined just Rs5 lakh for this. This is pocket money for the insurer and makes a mockery of the regulatory system. We had covered the issue of unlicensed entities way back in 2010, over here (http://www.moneylife.in/article/8/5371.html).
The second and last indictment accused the company for flouting guidelines on Group Insurance Policies dated 14 July 2005, wherein it is the insurer’s responsibility to ensure that claims payments go directly to the beneficiary, or insured. However, the company had apparently been sending cheques, in event of claims, in favour of the master policy holder (for instance, any firm which has taken insurance on behalf of its employees) instead of the beneficiary (the employee), thus putting the onus on the policy holder to settle the cheque, and absolving itself of the responsibilities. For this violation, the company was fined just Rs1 lakh.
Thus a total of Rs 6 lakh was fined by BSLI for two out of 22 violations. This isn’t the first time that Moneylife has written about selling through illegal intermediaries. Insurance companies are merrily using the illegal multi-level marketing (MLM) system to push insurance. When caught they promptly disown any linkage and promise to “take action.”
It is pertinent to note that it took as much as eight months to issue a show-cause notice (27 July 2011) after BSLI replied to IRDA’s initial observation. And after the insurer had replied to the show-cause notice on 30 August 2011, IRDA then took more time, till 1 February 2012 before calling for a personal hearing. Only then, after the hearing, the final order (13 April 2012) was passed.
We cite a few important transgressions and IRDA’s decision on each of them:
• Violation of Section 40A of Insurance Act, 1938
(IRDA) Inspection Observation 30(d): Commission being paid to agents even when premiums are being funded by the company under premium waiver benefit.
(IRDA) Decision: Insurer has submitted that there could be policy servicing requests during the term of the policy to agent and the practice of payment of commission in such cases may motivate agents to continue promoting such waiver benefits wherever applicable which again is in the interest of policy holders. On examining the reply of the Insurer charges are not pressed. However insurer is hereby directed to stop paying the commission to agents in all such cases where premium is funded by the company as part of premium waiver benefit.
So, for the last two years, the company has been ‘motivating’ agents by paying commissions to them even though when it shouldn’t have. BSLI claims that this is in “the interest of the policy holders”. Really? Well, motivating agents to ram policies down consumers’ throats is most definitely NOT in consumers’ interests.
• Violation of Regulation 2(CC) of IRDA (Investment Regulations, 4th Amendment) 2008
Inspection Observation 2: Insurer has categorized the investments in mutual funds as “Money Market Instruments” for the purpose of public information. (Product Brochure of Titanium plus Plan)
Decision: The insurer states that BSLI invests in liquid mutual funds and they have included the mutual fund in the ‘Money Market and Cash’ segment in the product brochure to represent investments in short-term investment. The insurer has also submitted that now an alteration was made in the product brochures to show mutual fund separately.
This is a classic case of mis-selling by misrepresenting a product in flyers and brochures. Companies will window-dress their product to make it look ‘safe’.
• Violation of Section 5 of IRDA (Investment Regulations, Fourth Amendment), 2008
IRDA Inspection observation 1(d): Insurer has breached the prescribed limit of 5% of fund size while investing in Mutual Funds and categorizing them as “Approved Investments”.
IRDA Decision: The insurer has submitted that he has acted as per the directions of the authority issued vide Regulation 3 (Investments) point 3, Investment Regulation 5 and The Asset Liability and Solvency Margin of Insurers Regulations, 2000, Schedule IIA 1(c). Insurer has also confirmed that in view of the IRDA Circular IRDA/F&I/CIR/INV/173/08/2011 dated 20th July, 2011, realigned its portfolio to come in compliance with the issued circular effective 1st October, 2011. Taking into account the submissions made by the insurer, the charges are not pressed.
• Violation of note 4 to Regulation 5 of IRDA (Investment Regulations, 4th Amendment) 2008
Inspection Observation 1(g): The company has taken blanket approval for raising the limit up to 15% in respect of industry/group exposure.
Decision: The insurer has submitted that the investment committee, as per the authority given to it by the board of directors, reviewed the exposure norms at group and industry level in its 41st meeting held on 28 January 2011 and has restricted the increased exposure to limited sectors only. The submissions of the insurer are taken into account. However, the delegation of authority, given to it by the board, by investment committee of the insurer is not proper and the insurer is advised to strictly follow henceforth the prescription of Note 4 to Regulation 5 of IRDA Investment Regulations.
IRDA is being too lenient, especially concerning investments which are a crucial part of an insurance company’s functional model.
• Violation of 4(6) of IRDA (Protection of policyholders’ interests) Regulations, 2002
Inspection Observation 16: Proper follow up is not done with the proposers to obtain pending requirements.
Decision: The insurer submitted that auto generated communication on pending requirements dispatched to proposers on the 10th, 20th, 30th and 38th day from the application receipt date with documentary proof. The insurer also informed the house that follow-up is being done through SMSs for all the pending proposals The submissions made by the insurer that proper follow up is indeed being done to obtain pending requirements from proposers is considered and the charges are not pressed.
• Violation of F&U Procedure
Inspection Observation 32: Top-up premium remitted along with the first premium was being accepted without minimum mandated additional risk coverage even when the top up premium is more than 25% of the first premium.
Decision: The insurer submitted that it has happened due to a system error which has been now rectified and assured that going forward such instances would not recur. Taking into account the submissions made by the insurer the charges are not pressed.
• Violation of provisions of Clause 27 of Licensing of Corporate Agents’ Guidelines, 14/07/2005
Inspection observation 33: It is observed that the company is not carrying out due diligence at the time of appointment of “Business Mentors”. The business mentors as mentioned in the report are working in different capacities with many insurers in contravention of the business mentor model as described by the company.
Decision: The insurer has submitted that they prohibit business mentor’s association with any other insurance company by taking self declaration on the same while recruiting. If they are found to be in association with any other life insurance company action against them is initiated. The insurer has also expressed that due to lack of central repository of corporate agents, due diligence could not be carried out while recruiting business mentors. They also submitted documentary proof of action taken on business mentors who are associated with more than one insurance company. Taking into account the submissions made by the insurer the charges are not pressed.
The remaining violations were ‘spared’ by IRDA.
Earlier, IRDA had admitted to industry-wide mis-selling (http://www.moneylife.in/article/irda-chairman-admits-pension-plans-were-mis-sold/21488.html). However, if a company can violate regulations and norms and get away with a paltry fine, it would set a poor precedent.
Earlier, Sahara Life Insurance had too committed a host of violations. We had written about it here. (http://www.moneylife.in/article/sahara-life-insurance-caught-for-multiple-violations-penalised-for-a-mere-rs12-lakh/24017.html). Sahara, too, was let off by IRDA in a similar fashion. A few months ago, HDFC Standard Life Insurance was slapped with a fine of just Rs5 lakh, for delaying a settlement claim (http://www.moneylife.in/article/irda-slaps-rs5-lakh-fine-on-hdfc-standard-life/20378.html).
IRDA has increased premiums for automobile insurance with effect from 1 April 2012. Insurance companies have come up with a new trick of using only the engine cubic capacity. The smaller and cheaper cars and bikes are subsidising the bigger and costlier ones
Insurance regulator, Insurance Regulatory and Development Authority (IRDA) has increased premiums for automobile insurance with effect from 1 April 2012. We see all sorts of new calculations on the scribble sheet that often accompanies the proposal which is also found on the cover note as well as the policy. The net result is that in some cases you can anticipate an increase of almost 50% over what you paid last year for the same vehicle, especially if it is a smaller car or a two-wheeler.
Of course, another truth is that the value of your car or bike is also going to depreciate faster. So with a lower cover, the premium amount also comes down for an existing vehicle—though that is cold comfort in case anything does happen to your wheels. However, in an attempt to see that they continue to collect as much as they can from you without increasing the coverage, the insurance companies appear to have come up with a new trick.
Take a closer look at the way the compulsory Third Party Risk and insurance premium is now calculated. Here are the details, and in all cases, taxes and other surcharges extra at actuals:
< 1000 cc = Rs784.00
1000cc - 1500cc = Rs925.00
>1500cc = Rs2,853.00
Private two- wheelers:
< 75cc = Rs350.00
75cc - 150cc = Rs 357.00
150cc - 350cc = Rs355.00
>350cc = Rs 680.00
Is this fair? I discussed this with a very senior person in the insurance industry in India, who has been in the business for over three decades been working in the public sector and knows the subject. Here’s a quick re-cap:
# There appears to be no differential rate for private cars registered and used by private individuals and private cars registered and used by government, corporates and companies. The presence on road, distance covered and therefore potential for causing damage to other road users is so much higher in these two categories, and has not been provided for.
# Third Party risk is basis the damage your vehicle can cause. A more powerful vehicle shall cause more damage and the premium should be much higher—preferably in terms of a composite of horsepower generated, maximum all-up gross weight and value. Using only the engine cubic capacity alone is a flawed method.
# As a result of using only the engine cubic capacity, it is clear that the smaller and cheaper cars and bikes are subsidising the bigger and costlier ones. A typical < 1000cc car would cost around Rs3-Rs4 lakh while the price of a >1500cc car would range from Rs8-Rs10 lakh all the way up to Rs3-Rs5 crore. That huge Audi Q7 or Mercedes Benz E Class or BMW 5 series will cost only 4-5 times more to insure for Third Party insurance while costing 50 times or more—and let’s not even talk about the Rolls Royce or Bentley or Aston Martin which would cost 200 times more than the Tata Nano.
# Goods vehicles are categorised and charged as per their maximum gross vehicle weight, which is also not totally correct, but is a far better way than going only by cubic capacity. Likewise, cars, three-wheelers and bikes used for carrying passengers have another formula, which also brings in the number of passengers to be carried and therefore covered.
The best co-relation that this person from the insurance industry gave went something like this: An additional cost of Rs5 is levied on the pao-vade that people eat at Dadar for Rs10, so that the person eating a full meal at a 5-star hotel has to pay only Rs50 for the Rs2000 bill—and entry to the 5-star is permitted only to those who drive up in a car costing over Rs20 lakh.
(Veeresh Malik had a long career in the Merchant Navy, which he left in 1983. He has qualifications in ship-broking and chartering, loves to travel, and has been in print and electronic media for over two decades. After starting and selling a couple of companies, is now back to his first love—writing.)