A working group set up by the Insurance Regulatory and Development Authority of India (IRDAI) has recommended linking of motor insurance premium to various traffic violations that range from parking in the no-parking areas to drunken driving.
As per the report, the motor insurance premium will be increased if the vehicle had been charged by traffic police for violating the traffic laws. The report recommends a system of calculating traffic violation points (TVP) on the basis of frequency and severity of different traffic offences.
The Insurance Information Bureau of India (IIB) will coordinate with various states' traffic police and the National Informatics Centre (NIC) to capture the traffic violation data, calculate violation points of each violating vehicle, and make this information available to all general insurers through information technology (IT) system integration with them.
The pilot of the project is planned to be implemented in the national capital territory of Delhi.
According to the report, the traffic violation premium may be fixed by the IRDAI and reviewed every three years or earlier as deemed appropriate.
Motor insurance constitutes 45% of the overall business of general insurance in India and is one of the important lines of business (LoB) in the general insurance business.
If motor insurance business is representing 45% of the overall general insurance business, then the business sourced by motor dealers appointed by insurers or intermediaries for distribution of motor insurance policies (MISPs) represent 11.25% of the overall general insurance business.
"The possible reason could be that the automotive dealers become the natural choice for seeking motor insurance by the customers while purchasing the vehicles, due to the mandatory requirements to purchase insurance. This necessitates the need and importance to strengthen the regulatory framework and supervision activities with respect to business sourced through MISPs," the report says.
There are different types of insurance products that are generally offered under the motor insurance LoB. However, own damage cover (OD) and third-party cover (TP) are the basic covers that provide coverage for own damages and third-party damages, respectively. Mostly comprehensive cover, which includes both OD and TP, is purchased by the customers to ensure that there are no gaps in the insurance cover.
Out of these, motor third-party insurance cover is mandatory in accordance with Section 146 of the Motor Vehicles Act as any vehicle plying on the roads must have at least motor third-party insurance policy. It is also a pre-requisite for registration of any motor vehicle in India as per Rule 47 of the Motor Vehicle Rules, 1988. To meet this requirement, motor insurance is bought at the time of purchase of every vehicle in India.
Neither MISP nor the registered insurance intermediary can change the premium rates offered by the insurance company. However, on examining the findings of the onsite inspection for solicitation of insurance business, the committee found that insurance intermediaries have created an electronic platform or portal through which the motor insurance policies are solicited and renewed.
Insurance companies provide the relevant motor insurance product features along with the premium rates to the insurance intermediary for the purpose of solicitation. The premium rates supplied by the insurance companies appear to include premium rates, discounts based on the make or model of vehicle, geography and various other parameters. The insurance intermediary uploads these details on to the electronic platform or portal which is accessed by the MISP to solicit insurance policies to customers.
However, the committee pointed out that the premium rates appear the same across all insurance companies for the same make, model, and geography of the vehicle. "It is also noted that the broker has control over the portal and allows access to only a few insurers to the MISP."
"This goes against the policyholder’s interest as the customer is denied a choice. The underlying reason appeared to be that the products with higher premiums or the products with higher commission are given access while solicitation, as higher premium charged from the customer goes to pay higher commissions, rewards, and brokerage to the detriment of the policyholder. By this way, customers are also forced to pay higher premium because insurance companies are not allowed to reduce premiums. This approach also interferes with the underwriting and premium determination process of the insurance companies, and may lead to unfair treatment to the customer," the report says.
The committee recommends for all insurers to develop a portal or app or use the existing electronic or e-commerce platform through which all motor insurance policies will be issued. It says, "This electronic or e-commerce platform should not have any functionality to modify or change in the premium rates quoted by the insurance company through the portal or platform. Customer, upon entering her details should get the premium quote and directly pay the insurance company online."
Talking about distribution fees paid to MISPs and the insurance intermediaries, the committee, in some cases, found that payments as well as payments other than commission were made to insurance intermediaries and MISPs. As per the findings of the onsite inspection, the insurers have paid to the insurance intermediaries and MISPs amounts in excess of the limits of distribution fees stipulated in the guidelines. These appear to be in the form of tours, advertising charges, training charges, and various other forms, it added.
The committee recommended that it should be mandatory for insurance companies to disclose premium amounts received by each distribution channel along with the corresponding commissions paid and also show the rewards payments made.
The IRDAI working group is a follow-up of a high-powered committee for traffic management in the NCT of Delhi, under the chairmanship of Union home secretary, requesting the insurance regulator to examine the issue of linking insurance premium to traffic violations.
However, experts in legal, insurance and consumer protection feel the Indian insurance regulator should follow its motto of protecting the policyholder's interest by policing the insurers instead of turning them into a 'traffic cop' to beef up their coffers with 'traffic violation premiums'.
"On the face of it, the recommendations seem to be good. Practically the result must be seen - whether it results in increasing the revenue of the insurers or reduction in accidents," Saroja S, director, Citizen Consumer and Civic Action Group (CAG) told IANS.
However, Ms Saroja noted that the committee did not have a single representative from the policyholders’ side.
"IRDAI should curb the huge discounting of the premium - up to 80% - charged for new vehicles instead of looking at other revenue avenues for non-life insurers," a senior official of the general insurance industry, speaking on the condition of anonymity, told IANS.
He said the traffic violation premium will add to the top-line and bottom-line of the insurers as the motor insurance premium is arrived at considering the entire claims experience.
While the committee has enthusiastically recommended charging traffic violation premium, it did not give any valid reason for offering a discount on premium for not earning any traffic violation points.
D Varadarajan, a lawyer from the Supreme Court specialising in company, competition, and insurance laws, told IANS that "the working group's recommendations of linking motor insurance premium with traffic violations is far-fetched, highly ambitious and is an attempt to shift the burden of implementation of the Motor Vehicles Act indirectly on the insurers, whereas the strict enforcement of the law lies on the shoulders of the state governments concerned."
Already, under the extensively amended Motor Vehicles Act, stiff penalties and fines, including imprisonment of errant drivers for various traffic violations are put in place, he said.
"The legality of the recommendation to charge 'Traffic Violation Premium' if implemented, would not withstand legal scrutiny, as it would amount to punishing a person twice for the same offence, one by way of traffic challan and other by charging traffic violation premium," Mr Varadarajan added.
Citing the working group's report, he said this system is not uniform among the select countries as discussed therein. For instance, it is noticed that Japan does not adopt this practice. Mr Varadarajan and Ms Saroja were of the view that there should be concerted efforts for strict implementation of the Motor Vehicles Act.
According to Mr Varadarajan, if the issue of uninsured vehicles is tackled on a war footing, most of the problems would be solved.
"This, coupled with the extant practice of loading of premium or allowing no claim bonus, would suffice and let the insurers be not saddled with this additional burden. It is not clear as to whether the working group's recommendations are based on the views of the cross-section of the insurers, vehicle owners, especially the commercial vehicle segment, etc., who already have their tales of woes," he said.