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Photo: iStock
Photo: iStock

Opinion | Things to check before buying motor insurance

Service providers must share terms from all insurance companies

Over the past few years, there have been several instances when friends buying new cars have called to check on the motor insurance they were offered by the dealer. Although an alternate insurance may have been more economical, my friends went ahead with the dealer’s offer because they felt it was better or a safer option in some way. However, that’s not necessarily correct.

Motor insurance, with an industry premium of about 65,000 crore, is the largest selling product in general insurance. It includes the purchase of motor insurance when you buy a new vehicle and also when you renew insurance. The sales processes for new and renewal insurance are different but the focus over the past few years has been on new sales. This purchase takes place when you buy a new car and is, most often, bought from the car dealer itself. The sale is even more important now because recent regulations require a three-year third-party insurance to be sold at the point of sale rather than the erstwhile one-year product. New business insurance sales involve the automobile manufacturer (OEM), dealers, intermediaries, insurers and you. This sequence also often reflects the priorities in the sales process.

New motor insurance purchase is not something most think about seriously. Why should you because the insurance cost in proportion to the vehicle is so small? A car costing 10 lakh will have an insurance premium of about 35,000, just 3.5%. And, the dealer convinces us that their insurance is the best. Much regulatory effort has gone into ensuring that buyers get a fair deal. In August 2017, the regulator issued the Motor Insurance Service Provider (MISP) regulations that clearly specified dos and don’ts for dealers and intermediaries. Two and a half years later, the regulator has taken several large insurance distributors to task and collectively fined them over 10 crore. What are the issues at stake? And how best should you buy insurance for your new car?

First, you are not obliged to buy motor insurance from the dealer that sells you the new car. In fact buying elsewhere can save you money. Determining the insurance cost at a dealer can be difficult because the premium is sometimes bundled into the overall purchase cost. This is illegal. The insurance premium has to be separately stated. You should look at this and check the terms outside the dealer network before buying. A savings of 5,000-10,000 is possible for a car worth 10 lakh, if you put in the effort, and the amount saved can be much larger in case of more expensive vehicles.

Second, your dealer or MISP broker must offer you products from all the insurers and not a select panel. The rationale is that panels can be selected based on the intermediary’s best interest rather than the vehicle buyer’s. The regulator has come down heavily on this through hefty fines and reiterated its stand that all the insurers should be allowed to compete at dealer networks.

Third, you cannot be induced or coerced into buying motor insurance from the car dealer. Insurance is a large part of a dealer’s profit, which is why there is considerable sales pressure and push. Positive inducement can take various forms, including the promise of cashless claim settlement only for insurance bought from the dealer, or a lower vehicle price, or complementary add-ons. Negative coercion can be by way of a car dealer saying that buying motor insurance elsewhere will delay your vehicle delivery or the claims will not be passed or that cashless claims services will not be provided. These assertions are incorrect because most insurers will issue your new vehicle insurance, without a registration number, soon after getting a pro forma invoice. Similarly, insurers do not differentiate their claim process by channel. The regulator has come down on these sales practices by levying fines in cases where dealers were incentivized by OEMs to sell insurance.

These regulatory orders are a reminder of what buyers should expect from a motor insurance cover. Specifically, they can buy insurance from wherever they want, MISPs must share terms from all insurers, insurance premiums must be clearly demarcated from the overall cost, and the product or claim settlement process cannot differ based on where you bought the insurance from.

Kapil Mehta is co-founder,

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