Motor Insurance Monopoly: IRDAI Allows SMC Insurance Brokers to Walk Away with Just Rs3 Crore Penalty Despite Serious Violations of MISP
The Insurance Regulatory and Development Authority of India (IRDAI) while trying to act tough on violations of its guidelines on Motor Insurance Service Provider (MISP) continue to allow insurance brokers with miniscule penalty. In recent order, the IRDAI has levied a penalty of just Rs3 crore on SMC Insurance Brokers Pvt Ltd and ordered no performance incentives for SMC's principal officer for one year, for serious violations of its MISP guidelines. SMC Insurance Brokers provide motor insurance for vehicle sold by Honda Cars Ltd and KIA Motors.
By not following the MISP guidelines, these brokers have created a monopoly and allegedly earned profits of crores of rupees. According to sources, the profit earned by these motor insurance brokers could be about 10 times the penalty levied by IRDAI.
In an order issued on 8 January 2020, Sujay Banarji, member for distribution at IRDAI, says, "SMC was expected to act diligently and with utmost care and responsibility giving no room for error. Unfortunately, SMC failed in complying with the MISP guidelines, which had been created to protect the interest of the policyholders and other stakeholders. This is evident from the penalties imposed for the violations of various provisions of the MISP guidelines."
Mr Banarji asked SMC Insurance Brokers to pay a penalty of Rs3 crore, dismantle its panel of insurers and empanel all insurers on its platform, redesign its systems of seeking consumer consent for buying motor insurance, and submit a quarterly audit report from an auditor with Diploma in Information System Audit (DISA) or Certified Information Systems Auditor (CISA).
IRDAI has received complaints from policyholders about MISP sponsored insurers forcing customers to buy motor insurance policies of the insurers who are on their panel, are having uniform premium rates of different insurers for same motor vehicle and are discriminating between insurance policyholder, who has bought motor insurance from that motor dealer as against who has not bought from them.
Some agents association also filed complaint with the insurance regulator about apparent conflict of interest in the role of MISP in selling insurance policies and servicing and repairing motor vehicles under the insurance policies sold by SMC, high claims ratio under the MISP channel, extra payments made to MISPs by insurers, and disparity of treatment to agents.
In its submission, the insurance broker stated that it has appointed eight general insurers out of 25 on its panel for selling motor insurance policies. SMC Insurance Brokers also stated that has achieved information technology (IT) integration with 10 insurers for 'Honda' category and with five insurers for 'other than Honda' category.
IRDAI observed that "SMC has sold only six policies of Honda cars through the manual process. As against this the number of policies of insurers who are IT integrated with SMC are very high. lt proves that the insurers who do not have IT integration are excluded from selling motor insurance policies, thereby creating a panel of insurers."
SMC also submitted that the President's Award Guide Book is between the Honda Cars (OEM) and the dealers (MISP) and it has nothing to do with it. "It is observed that the President's Guide Book is an agreement in the form of a guide book between Honda (OEM) and the dealer (MISP) in which the MISP has agreed to perform tasks for which he is rewarded, one of which is the sale and renewal of insurance policies. Since the MISP is sponsored by SMC, it is responsible for acts of omission and commission of the MISP. The MISP guidelines do not allow OEMs to set targets or offer incentives to MISP in meeting sales targets of insurance policies. By doing so the MISP and consequently SMC, being the sponsor of the MISP, has violated the MISP guidelines," Mr Banarji observed in his order.
SMC also submitted that is there is agreement between the broker and KIA Motors. As advised by the insurance regulator, SMC submitted a service level agreement between itself and one of the insurers with regard to KIA motors. "The agreement is broadly in line with the conditions put in the MISP Guidelines," IRDAI said.
IRDAI also noted that SMC being a representative of the customer, has a responsibility to ensure that he gets the best terms, benefits, coverages and render proper advice on appropriate insurance cover and terms. By having a uniform rate across all insurers, SMC has not performed the functions of the direct broker and violated Regulation 4 of IRDAI (lnsurance Broker) Regulations 2018, it said.
Taking serious note of the affidavit submitted by principal officer of SMC, the insurance regulator says it was found to be contrary to facts. It says, "Considering the seriousness of the issue, the Authority under Guidelines 15(d)(1) of MISP Guidelines directs that SMC shall not release performance incentives to the principal officer for one year from the date of this order."
Here is the orders issued by IRDAI against SMC Insurance Brokers Pvt Ltd...