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17 October 2017
Indian insurance laws have traditionally restricted the distribution of insurance products to insurance agents and insurance intermediaries that have obtained the requisite licences and registration from the Insurance Regulatory and Development Authority of India (IRDAI). Section 40 of the Insurance Act 1938 (as well as various regulations issued by the IRDAI) strictly prohibits unlicensed persons from distributing insurance products and receiving any payment from an insurer for distribution of insurance products.
These prohibitions, while aimed at protecting the interests of policyholders, resulted in issues for insurers and insurance intermediaries in terms of accessing potential customers for certain lines of business – in particular, motor insurance products. In this regard:
Therefore, unlike several other lines of insurance where penetration remains fairly low, most customers of new automobiles prefer to purchase motor insurance along with the vehicle itself and often have a fairly limited decision to make in terms of choosing the insurance product that they wish to purchase. With this background, over the years, insurers and insurance intermediaries have attempted to access these prospects, including by placing personnel in automobile dealerships and compensating the automobile dealership for the space used. However, in several instances, the IRDAI has raised questions over these arrangements – largely regarding the fact that unlicensed persons are involved in the solicitation and procurement of insurance business. This has led to a growing need to address the distribution of motor insurance at automobile dealerships.
The first step in terms of reform was in October 2015 when the IRDAI notified the Guidelines on Point of Sales Person (POSPs) to simplify the solicitation of insurance products which require limited underwriting. POSPs are individuals who can be engaged by either insurers or insurance intermediaries. Under the POSPs Guidelines, minimum qualifications (10th standard passed) are required and POSPs must be trained and certified by the insurer or insurance intermediary. Motor (comprehensive and third-party liability) products are among the products which POSPs can solicit. While this was indeed a welcome step aimed to increase insurance penetration in the country, certain logistic issues persisted as insurers and insurance intermediaries were still required to place POSPs within automobile dealerships, which led to these dealerships seeking compensation for usage of space and personnel.
In view of such complexities and surviving market practices, in November 2015 the IRDAI formed a seven-member committee to "bring clarity and transparency in pay outs made to the auto dealers by the insurers for getting motor insurance business".
Ultimately, on August 31 2017 the IRDAI notified the Motor Insurance Service Providers (MISP) Guidelines to identify and regulate the role of automobile dealers in distributing and servicing motor insurance products.
The key features of the MISP Guidelines are as follows:
The IRDAI's move to recognise the role of automobile dealers through the MISP Guidelines gives legitimacy to existing practices of solicitation and servicing of motor insurance by involving automobile dealers. However, as the MISP Guidelines permit both insurers and insurance intermediaries to engage MISPs, in the event that insurers chose to engage MISPs directly, the involvement of other insurance intermediaries in soliciting and procuring motor insurance products may effectively be minimised. Further, with the introduction of the POSP and the MISP Guidelines, and the legitimisation of distribution of insurance through automobile dealers, the other existing structures and practices in relation to automobile dealers will have to be dismantled.
For further information on this topic please contact Celia Jenkins or Shubhangi Pathak at Tuli & Co by telephone (+91 11 2464 0906) or email (firstname.lastname@example.org or email@example.com). The Tuli & Co website can be accessed at www.tuli.co.in.
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