Mumbai: Banned by the Insurance Regulatory and Development Authority (Irda) from selling motor insurance to its customers, Maruti Suzuki India Ltd, the nation’s largest passenger car maker, is looking to float a general insurance firm with a local partner.
The company had been selling motor insurance under its umbrella brand, Maruti Insurance, since 2002.
In fiscal 2010 alone, it sold at least 2.5 million policies, but won’t be selling any more as the regulator has cancelled its agency licence, according to an Irda official familiar with the development.
The move came after insurance companies alleged that Maruti service stations were inflating bills and pushing them into losses through hefty claims.
“We are recasting our business model as directed by Irda. In the meantime, we are ensuring that there is no impact on customers,” said Kanwaldeep Singh, general manager (corporate) at Maruti Suzuki. “We are looking at floating a new insurance company in joint venture with an Indian company. It may also be a three-way joint venture.”
Foreign companies can’t hold more than 26% of any Indian insurance venture. With Japanese parent Suzuki Motor Corp. holding a majority stake in Maruti, it will not be able to hold a 74% stake because of its overseas partner’s indirect holding. This means it will be a three-way joint venture.
“Considering the scale of Maruti’s operations, it would benefit both Maruti and its customers,” said an insurance expert at a large consultancy company, who did not want to be named. Globally, there have been instances where the car makers themselves have entered into the motor insurance business to cater to their customers.
For instance, Ford Motor Co. and Mitsubishi Motors Corp. have their own motor insurance business.
Till recently, Maruti Suzuki was acting as an agent for at least six major general insurance firms, including National Insurance Co. Ltd, New India Assurance Co. Ltd, Iffco-Tokio General Insurance Co. Ltd and Bajaj Allianz General Insurance Co. Ltd.
While a corporate agent can sell policies of multiple firms, a broker can sell policies of only one firm. But Maruti Suzuki cannot be a broker under insurance norms since its foreign promoter holds a 54.21% stake.
“Some car companies have been eating into the profits of the general insurance companies. They have been producing inflated bills against the claims made. Irda will not allow such car companies to sell insurance unless they change their business model,” said the Irda official.
There are 23 non-life insurers in India and 17 of them sell motor insurance. The non-life insurance industry has been grappling with huge losses over the years, primarily because of inflated bills both in the motor and health insurance businesses.
According to Irda, during 2009-10, these 17 firms underwrote a gross premium of Rs15,129.88 crore on motor insurance, while the premium underwritten by the overall non-life insurance industry was Rs34,817.17 crore. For some of the insurers, 90% of the premium comes from the sale of motor insurance policies.
With around 50% market share, motor insurance accounts for the largest share in the general insurance industry.
The car companies contribute to a considerable part of the country’s total motor insurance business.
The motor and health insurance industries together account for 70-80% of the non-life industry’s total premium and claims ratios are the highest in these two segments.
“Inflated bills against insurance claims have resulted in a loss ratio of 100-110% in the motor and health insurance business,” said another Irda official. None of these officials wanted to be identified due to the sensitivity of the issue.
In order to curb further losses in the health insurance business, state-owned health insurers have stopped providing cashless treatment facilities at several hospitals that were allegedly overcharging customers, resulting in high loss ratios.
Typically, car companies sell motor insurance policies along with their cars, and promise their customers hassle-free and cheaper motor insurance. The premium offered by the car companies is often lower than what their customers would have paid had they bought the cover separately.
In the event of insurance claims, the cars are serviced by the authorized service stations of the car makers.
Normally, the dealer takes the initiative of getting in touch with the insurance company, surveying the car and claiming the money from the insurer.
The car owner has to pay only the difference between the overall expense and the insurer’s contribution.
If insurance is arranged by the car owner, the onus is on the customer to get the car surveyed after an accident and claim the payment from the insurer.
In some cases, the insurance company may also insist that a first information report of the accident be filed with the police by the car owner before releasing the money. This is not required if the car seller has a tie-up with the insurance company.
“While Maruti will not be able to facilitate or offer an interface to its customers till it forms the insurance firm, its dealers will make the necessary arrangements for the customers,” said the head of a Mumbai-based Maruti dealer, who declined to be named.
As of 31 March, the company had a sales network of 802 centres in 555 towns and cities across India.
It provides service support to customers at 2,740 workshops in at least 1,335 towns and cities.
Aveek Datta also contributed to this story.