Motor Insurance Monopoly: Toyota Tsusho lnsurance Broker Also Gets Away with Just Rs3 Crore Penalty Despite Serious Violations of MISP
The Insurance Regulatory and Development Authority of India (IRDAI) has levied a penalty of just Rs3 crore on Toyota Tsusho lnsurance Broker India Pvt Ltd (TTIBIL) for serious violations of its guidelines on Motor Insurance Service Provider (MISP). The order from the regulator, however,  follows similar pattern where IRDAI has given leeway to two largest insurance brokers, Maruti lnsurance Brokers Pvt Ltd (MIBL) and Hero Insurance Brokers Pvt Ltd (HIBIL) by levying a penalty of just Rs3 crore and Rs2.18 crore, respectively, on the brokers. (Read: Has Motor Insurance Become Monopoly of Automakers? IRDAI Allows Leeway to Maruti and Hero Insurance Brokers with Small Penalty for Serious Violations)
 
Toyota Tsusho lnsurance Broker or TTIBIL has sold about 7.06 lakh motor insurance policies to 
3.16 lakh Toyota car owners and 3.90 lakh Yamaha owners.
 
In an order issued on 8 January 2020, Sujay Banarji, member for distribution at IRDAI, says, "TTIBIL is a significant broker in the selling and distribution of motor insurance in the country. It is part of the Toyota Kirloskar Motor Pvt Ltd (TKM) having strong presence in motor vehicle segment. By not getting the best terms, benefits, coverages for the customer TTIBIL has not conducted its dealing with clients with utmost good faith and integrity, nor has it acted with care and diligence thereby violating the conduct in matters relating to clients relationship."
 
IRDAI says it had received complaints from policyholders, general lnsurance agents association and insurers about apparent conflict of interest in the role of TTIBIL in forcing motor customers to buy insurance for the insurers on their panel. The complainants also alleged that TTIBIL has kept the uniform premium rates for same motor vehicles from all its seven insurers and been discriminating between insurance policyholder, who has bought motor insurance from that motor dealer as against who has not bought from them.
 
Further, TTIBIL was servicing and repairing of motor vehicles under the insurance policies sold by it, high claims ratio under the MISP channel, extra payments made to MISP by insurers, and disparity of treatment to agents, the complaints received by IRDAI had said.
 
According to IRDAI, the MISP entered into an agreement with TKM, the original equipment manufacturer (OEM) through the dealer expectation standards India (DESI) 2019, a dealer evaluation programme that gives the methodology of rewarding dealer for retaining insurance policies issued through him. The marks under the programme are linked to the rewards and incentives, which the dealer gets from the OEM. By rewarding dealer for retaining insurance policies issued through him, the principal officer (PO) of TTIBIL has contradicted his affirmations in the notorised affidavit, it added.
 
IRDAI says, "By imposing the above restrictions, the customer or prospect is denied his rights and options to buy or renew his motor insurance policy from any insurance intermediary and curtails the choice of prospective policyholder. The MISP actions are therefore prejudicial to the interest of the policyholder and leads to unfair trade practices TTIBIL being the sponsor of the MISP, is responsible for all omissions and commissions of MISP. It has therefore violated provisions such as inducing the customer and indulging in unfair business practice; forcing the MISP to make customers buy motor insurance policies from them and restricts choice of policyholder and prejudicial to the interest of the policyholder and leading to unfair trade practices."
 
In its submission, the insurance broker stated that it has appointed seven general insurers out of 25 on its panel for selling motor insurance policies. "The customer has the ultimate choice to opt from insurance from any channel or insurer of his choice. Around 3.16 lakh Toyota car owners out of 10 lakh Toyota cars sold have taken insurance through their retail car insurance. Similarly, out of 35 lakh plus Yamaha vehicles around 3.90 lakh Yamaha owners have taken insurance through their programme," it added.
 
TTIBIL admitted that as many as 7.06 lakh customers had bought motor insurance policies through its panel. 
 
IRDA, however, observed that "By having allocation of marks for insurance penetration in the DESI 2019 makes the MISP force customers or prospects buy motor insurance policies from them. TTIBIL being the sponsor of the MISP and being responsible for all omissions and commissions of MISP has therefore, violated provisions of MISP guidelines."
 
Here is the orders issued by IRDAI against Toyota Tsusho lnsurance Broker India Pvt Ltd (TTIBIL)...
 
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    COMMENTS

    raghu reddy

    7 months ago

    I have also taken policy. Wat about our fate.

    Merging Insurance Companies: Yet Another Air India in the Making?
    If you do not know where you are going, it does not matter which road you take. Well, this is not exactly what the cat said to Alice in the famous parable, but it captures succinctly the conundrum currently surrounding the merger of general insurance companies in the public sector, namely, Oriental Insurance (Oriental), National Insurance (National) and United India Insurance (UI).

    The department of financial services has now taken the first step towards going down the rabbit hole by announcing that two of these, namely, National and UI, will be merged with Oriental by 31 March 2020. The merged entity will start functioning with effect from 1 April 2020 with its head office in Delhi.
     
    According to rough estimates, the capital infusion needed is at least Rs2,000 crore-Rs3,000 crore in each of the companies, and the total collective requirement is close to Rs12,000 crore-Rs13,000 crore. What is perhaps left unasked is: Will this merger, accompanied by the fund infusion, act as a silver bullet, that is, will it make the merged entity viable both in terms of capital adequacy and the return on investment to the principal shareholder, the Indian taxpayer?
     
    The question that arises while making such an open-ended commitment of taxpayers’ money is: whether there has been a robust and transparent debate to evaluate the decision, the process and the likely outcomes? 
     
    Let us start by asking a basic question—what is the objective behind the proposal? Is it to cut costs? Is it to create synergies? Is it to provide for a government owned counterweight to the private sector in the general insurance space, something like the Life Insurance Corporation (LIC) in the life insurance space? The government probably assumes that consolidation will lead to cost rationalisation, marketing synergy, avoidance of wasteful competition and better leveraging of the balance sheet, thereby restoring the profitability of the merged businesses.
     
    The one likely objective—cost cutting - seems reasonably straightforward at first sight and possibly that is what is driving this whole exercise. Merging the companies will eliminate the wasteful expense of these three companies having an office each in the same locality, sometimes in the same building, thus saving on rent and other fixed costs. This will also eliminate the parallel pyramids of staff and officers in the three companies.
     
    However, if the government promises that jobs will be protected, and in the current scenario this is a given, then any attrition of manpower will only happen gradually, by way retirement. The financial strain of a realistic voluntary retirement scheme (VRS) may break the balance sheets of these companies.
     
    The second objective might be to create synergy. This is easier said than done.
     
    Integrating the information technology (IT) systems or migrating to a standardised one will be a logistical and financial nightmare. Business operations of these companies will be paralysed while integration is taking place. Although outwardly similar, these three companies have different cultures and practices and integrating them will be a long and painful grind. Even if the elusive goal of synergy is somehow accomplished, what would it achieve? If the market doesn’t really need you, synergy of any kind is a false objective.
     
    Creating a counterweight to private sector?  One large company, New India Assurance, already exists. This is a listed entity and perhaps this factor gets in the way of integrating the four public sector insurance companies, instead of the three unlisted ones, which would have been the most sensible course to take. Yet another giant public sector insurer is unlikely to stand on its own in the market, given the strong presence of private sector companies in almost all nooks and corners of the country. The only thing that is bound to happen is that the business of the three public sector companies will move to the private sector or to New India while the transition is taking place. By the time the merger is fully accomplished, the merged company would have turned into an insignificant entity, presumably a dumping place for unwanted business or to administer government-sponsored schemes.
     
    Here it may be pertinent to examine the seemingly parallel merger of public sector banks. While the drivers may be similar, the operational consequences are different. Bank customers are unlikely to move their banking relationships in a hurry—be it savings or current accounts, or loans.  Juxtapose this with the fact that insurance policies are generally 12-month contracts.  Customers always do forum shopping at the time of renewal. There is every incentive to move one’s policy to another insurer either for a lower premium or for better service. The other parallel that might be drawn is the merger of Mahanagar Telephone Nigam Ltd (MTNL) and Bharat Sanchar Nigam ltd (BSNL). This is a false analogy simply because while ownership of telecommunication assets can be justified as a strategic imperative for the government, there are no such imperatives as regards the non-life insurance space. In any case, hopefully, the one listed insurer, New India, can serve the purpose, if any, behind government presence in the market.
     
    Will the merged entity generate returns for the government? A cursory look at the financial performance of each of these three companies will provide the answer—none of them have made an underwriting profit for the past couple of decades and some of these companies have actually incurred losses even after considering the investment income. The harsh fact is that insurance financial statements, given the reporting standards currently prevalent in our country, are notoriously opaque. The real state of their financials might be far more alarming than the published figures. 
     
    Would the merged entity provide a choice to the insuring public? Given that there are already 27 companies in the market, competing for a customer base, the argument of offering customer choice sounds preposterous. 
     
    Will the merged entity have a strategic rationale for its existence? Is there a gap in the market which a second public sector insurer will fulfil or will it end up as a drag on the other remaining public sector company, New India? It is obvious that the merged entity will act as a direct competitor to New India rather than to other private sector insurance companies. 
     
    The reality is that non-life market is overcrowded and fiercely competitive. Regardless of the projected growth of the economy, the market is unlikely to make room for a new insurer. Make no mistake, the merged entity will be a new entrant given that consumer loyalty is rather flaky. Share of the non-life premium in the gross domestic product (GDP) has barely moved over the years, and with the economy being near-stagnant now, the size of the pie is unlikely to grow at the same pace as was the case in the past couple of decades. The size of the pie and its constituents are probably the subject matter for another article.
     
    Is the merger a prelude to eventual disinvestment? Drawing a parallel with Air India privatisation is possibly not very apt. Air India has international flying rights and airport slots which make it attractive to a potential investor. It is difficult to imagine why any eventual disinvestment or listing of the merged entity will attract any interest from private investors. The best course for the government would be to put the three companies into ‘run-off’ and give a golden handshake to its employees. This is a common practice in all insurance markets where a general insurance company is in terminal decline and is not an attractive proposition for merger or acquisition.
     
    If the merger exercise goes ahead in its present shape and form, the owners, i.e., the government, will have 'another fine mess' on its hands sooner rather than later.
     
    The principal reason is that there is no business case or other strategic rationale for the merger. Our experience shows that government ownership simply does not allow the management to run a business like a business.  And it is our money which will be spent time and again.
     
    The additional capitalisation requirement mentioned in the earlier part of this article is merely the starting point; it is very likely that, given the total absence of a business case for the existence of the merged entity, periodic top-ups become inevitable. This is where one worries about 'another Air India' inasmuch as this will amount to throwing good money down the rabbit hole.
     
    (Shrirang Samant has worked in senior leadership roles in the General Insurance Industry, both in public and private sectors, in India and abroad. He has been privy to the transition of this industry from public to private sector in the country and was the founding CEO of a multinational insurance joint venture- JV in India.) 
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    COMMENTS

    B. Yerram Raju

    7 months ago

    The economy needs more than mergers. Stop the merger mania for the present.

    chandan

    7 months ago

    Very well explained and approaching the practical aspects.

    Mahesh Kalkar

    7 months ago

    Very well articulated. Unfortunately, who listens in the policy making corridors? No one. Travesty of so called running the country!

    VINAY PRABHAKAR

    7 months ago

    Couldn't find the link of the announcement by Dept of Financial services stating that United India and National insurance will be merged into Oriental insurance...Link Please???

    Meenal Mamdani

    7 months ago

    Excellent article that explains the possible govt rationale for the proposed merger and the clear explanation why such a merger is unlikely to be successful.
    Govt is trying to avoid adding another piece of bad news to the already gloomy picture of the economy.
    It is clear from this article that the govt is trying to avoid short term pain but letting itself in for a long term headache.
    As for Godbole's concern about the workers, while admirable, shows why people pay enormous sums of money to get into a govt entity. It is a secure appointment for life, something that is unlikely in any private enterprise.

    Praveen Godbole

    7 months ago

    As an alternative to merger of three general insurance companies, author suggests ...."to put the three companies into ‘run-off’ and give a golden handshake to its employees". Really? Has anything like this been tried in Indian insurance market before? After relatively long lull, big recruitment exercises were carried out in these companies in recent years. What will happen to the young workforce which is not even 30?
    Considering the available options, merger and consolidation seems to be the best approach. Only that it needs to be handled carefully.

    Ramesh Poapt

    7 months ago

    a patient suffering from severe cough/cold goes to doctor. Dr advises to take ice cubes every hour. Patience says I will get typhoid by that. Dr says exactly. I m expert in only that!

    REPLY

    chandan

    In Reply to Ramesh Poapt 7 months ago

    Ha ha...Good sense of humor

    Nihanth

    7 months ago

    agree on most of the points but there is a huge retirement spree in the coming 2-3 years nearly 4000 employees in United India Insurance Co are retiring the figures will be more or less the same in other two companies as well so there will be no need of a vrs and also what's the difficulty in merging a listed company (new india assurance) in this case and unlisted company when government is the major shareholder in both the entities surely it can't be harder than merging psbs....

    Has Motor Insurance Become Monopoly of Automakers? IRDAI Allows Leeway to Maruti and Hero Insurance Brokers with Small Penalty for Serious Violations
    Coming down heavily on two largest insurance brokers, Maruti lnsurance Brokers Pvt Ltd (MIBL) and Hero Insurance Brokers Pvt Ltd (HIBIL), the insurance regulator has exposed violations of several of its guidelines on Motor Insurance Service Provider (MISP) by these brokers. The Insurance Regulatory and Development Authority of India (IRDAI), while directing Maruti lnsurance Brokers and Hero lnsurance Brokers to dismantle their panel of insurers, and not to interfere in premiums, also levied penalty on the brokers. 
     
    IRDAI had received complaints from some general lnsurance agents association about apparent conflict of interest in the role of MISP in selling insurance policies and servicing and repairing of motor vehicles under the insurance policies sold by it, high claims ratio under the MISP channel, extra payments made to MISP by insurers, and disparity of treatment to agents.
     
    Maruti lnsurance Brokers and Hero lnsurance Brokers are two of the largest motor insurance brokers for four wheelers and two wheelers, respectively, in India. Both these brokers are associated with Maruti Suzuki India Ltd and Hero Motocorp Ltd (formerly Hero Honda). 
     
    In two separate orders issued on 17th and 18 December 2019, IRDAI has also asked both these brokers not to pay any performance incentives to their principal officers for submitting affidavits contrary to facts of the cases. While Maruti Insurance Broking is directed to pay Rs3 crore, Hero Insurance Brokers is asked to pay Rs2.18 crore as penalty for violations of various guidelines of MISP.
     
    "By not explaining to the customer the degree of choice that products are on offer, providing the customer a comparison in terms of price, cover or service, MIBL and HIBIL has violated the conduct in matters relating to clients relationship under Schedule I - Form H dealing with Code of Conduct under Regulation 30 & Regulation 8(2) of IRDAI (lnsurance Broker) Regulations, 2018 and by not getting the best terms, benefits, coverages for the customer MIBL and HIBIL has not conducted its dealing with its clients with utmost good faith and integrity, nor has it acted with care and diligence thereby violating the conduct in matters relating to clients relationship under Schedule I - Form H dealing with Code of Conduct under Regulation," the orders say.
     
    Before IRDAI, MIBL admitted that MISP sponsored by the broker have offered discount on labour and interior cleaning, thereby inducing the customer and indulging in unfair business practice, which the regulator says restricts the choice of the policyholder to choose the insurer or insurance intermediary. IRDAI observed "By denying the facility of cashless claims to the policyholder, when the motor insurance policy is not purchased through MISP's sponsored by MIBL, the MISP is discriminating between policyholders. MISP's have therefore violated Guidelines 12 & 13 of the MISP guidelines dated 31 August 2017."
     
    "By admitting to Maruti insurance retention, under customer retention programme as one of the performance parameters to judge the performance of the dealer and reward him accordingly, the principal officer has contradicted his assertion in the affidavit and also violated IRDA Circular no. lRDA/ INT/ MISP/ 5/01/2018 dated 11th January 2018, which states that no MISP or the insurance intermediary can enter into an agreement with the original equipment manufacturer (OEM), which has an influence or bearing on the sale of motor insurance policy," the order says.
     
    Similarly, HIBIL being a representative of the customer, has a responsibility to ensure that the policyholder or customer gets the best terms, benefits, coverages and render proper advice on appropriate insurance cover and terms. IRDAI says, "By having a uniform rate across four insurers, HIBIL has not performed the functions of the direct broker and violated Regulation 4 of IRDAI (lnsurance Broker) Regulations 2018."
     
    Based on submission of HIBIL, the insurance regulator pointed out that the brokerage was inducing customers and indulging in unfair business practice. Out of 3.52 lakh two-wheelers sold, 1.29 lakh customers or 37% bought insurance policies from HIBIL, which IRDAI says is a "very significant number and cannot be ignored".
     
    HIBIL denying uniform rates to customers directly contradicts the earlier submission which shows one premium rate by one insurer for four wheelers, three wheelers and miscellaneous (such as tractors, excavator, and harvester or Misc-D) vehicle. Also it shows for two wheelers, only three insurers for 100 cubic centimetres cc, two insurers for 110 cc, and one insurer for 125 cc, which again is a violation of the MISP Guidelines.
     
    "The admission by HIBIL that cost of own-damage (OD) premium was reimbursed to customer proves that HIBIL was indulging in unfair trade practices, indulging in manipulating insurance business and restricting the choice of the customer," IRDAI added.
     
    Several customers and customers of other insurance brokers have filed complaints before IRDAI about violations of MISP guidelines by Maruti lnsurance Brokers and Hero lnsurance Brokers. Customers of Policybazaar lnsurance Web Aggregator Pvt Ltd had said that customers who are purchasing insurance policies through the web-aggregator's web-site are being denied the facility of cashless claims if the motor insurance policy has not been purchased through MIBL or through MISP's sponsored by MIBL. 
     
    IRDAI had received several complaints and representations from some general insurers stating that they are willing to enter into a service level agreement with MIBL based on transparent and objective criteria. However, despite the insurance companies having made many requests to MIBL for empanelling them, MIBL have neither responded nor empanelled them for selling motor insurance policies through their MISPs, the regulator observed. MIBL admitted to creating a panel of 13 general insurers out of a total of 25 general insurers.
     
    HIBIL or Hero Insurance Brokers, on the other hand admitted that it was working with only four insurers out of 25, from 1 September 2018, or after the start of its business operations. IRDAI, however, observed that even in that case, HIBIL has denied uniform rates to customers. “This directly contradicts (HIBIL’s) the earlier submission, which shows one premium rate by one insurer for four wheelers, three wheelers and Misc-D vehicle. Also it shows for two wheelers only three insurers for 100 cc, two insurers for 110 cc, and one insurer for 125 cc, which again is a violation of the MISP guidelines.” 
     
    Both Maruti lnsurance Brokers and Hero lnsurance Brokers are directed by IRDAI to...
     
    a) dismantle panel of insurers and empanel all insurers on platform, have full integration with insurers computer systems, ensure premiums quoted to customers come directly from insurer's systems without any intervention by the broker and report compliance within three months from the date of the order. ln case any insurer does not wish to enter into an agreement with the insurance broker for selling and distributing motor insurance policies through the MISPs sponsored by MIBL/ HlBlL, the chief executive (CEO) of the general insurance company shall confirm the same in writing to the broker.
     
    b) redesign the current system of seeking customer consent for purchasing the motor insurance policy in such a manner that the customer exercises choice of selecting the insurer through an OTP based system at the time of issuance of a new motor insurance policy and its renewal. The broker company shall complete the task in six months and report compliance.
     
    c) submit a quarterly audit report from DISA/ CISA certified auditor that the electronic platform or portal complies with the requirements of the MISP guidelines and in no way interferes or places restrictions in the premium to be charged by insurers or in any way restricts or influences the choice of the customer.
     
    Here are the orders issued by IRDAI against Maruti Insurance Brokers and Hero Insurance Brokers…
     
     
     
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    COMMENTS

    Praveen Godbole

    7 months ago

    It is unlikely that MIBL and HIBIL will mend their ways in favourably exploiting 'conflict of interest' to their advantage. The penalty imposed is miniscule compared to their earning from such monopolistic malpractice. What these brokers will certainly do is to change their processes on paper, so as to be on right side of regulators. And what can IRDAI do if dealers refuse to give cashless facility to policyholders not having motor policy from these brokerage? IRDAI has no regulatory authority over motor dealers. Ideal would be not to licence brokerages promoted by auto companies and in case of similar conflict of interest.
    And Policybazar playing victim card? Ha Ha. They are know to push products of certain insurers (no prize for guessing why) when one tries to buy policy on their portal.

    Vikas Gupta

    7 months ago

    Very good decisions.

    Mahesh S Bhatt

    7 months ago

    In above case IRDAI gets fine money but Customer gets zero? Devise mecanism to pay aggrieved Customer & existing customer overcharged pay back mecanism of the said fine.

    In Reliance Petroleum Corporation Merger with RIL SEBI fined RIL Rs 844 cr but investor got zero.Now RIL has issued Reliance Retail shares ESOP's on funds from RIL,RIL investor sees his money lost openly legally? Mahesh Bhatt

    Mahesh S Bhatt

    7 months ago

    I was also guided by Maruti Insurance from Vitesse repeated calls & we didnot have options shared Mahesh

    Ramesh Poapt

    7 months ago

    Good one!!

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