05 Feb 2018 16:08 IST

Drive away with the best deals

The Motor Insurance Service Providers Act ensures more transparency at the dealer end

Planning to buy a new car? Then you are sure to have gone through the rigmarole of flipping through glossy brochures, slicing up good deals and numerous test drives. But before you drive away with your dream vehicle, there is the humdrum affair of buying insurance.

For many of us, insurance at the time of buying a car, is only a formality. We prefer to buy it along with the vehicle, and hence often take up whatever is on offer by the dealer. While it saves one the hassle, it may not be the most appropriate or cost-friendly policy.

In a bid to identify and regulate the role of automobile dealers in distributing motor insurance products, the IRDAI notified the “Guidelines on Motor Insurance Service Providers (MISP)” in August 2017. Effective November 1, 2017, the new guidelines intend to formalise the distribution of motor insurance policies at the dealer end. In a nutshell, for you, as a customer, this means wider choice of insurance policies, more transparency and possibly cheaper policies in times to come.

Here’s looking at some key regulatory tweaks and what it means to you.

Formal structure

In the past, your neighbourhood automotive dealers worked with a broker or acted as an individual to distribute motor insurance policies. While this may have worked well for you, the regulator has been concerned over unlicensed persons soliciting or selling policies.

So what changes with the new guidelines? For one, it creates a formal structure that legitimises distribution of motor insurance policies at the dealer end, implying more transparency and accountability for the customer. Also, recognising the role of dealer in soliciting insurance policies ensures regulatory oversight over their activities.

The MISP, defined as an automobile dealer appointed by the insurer/intermediary, has specific eligibility conditions laid down by the Act. The sponsoring entity is now responsible for all acts of omission and commission of the MISP.

So if you have any grouse or complaints with the manner in which you were sold policies, you now can approach the insurer, who in turn is accountable for the MISP/dealer that sold you the policy in the first place.

The more the merrier

The MISP Act states that the dealer or any other person acting as MISP should offer motor insurance policies of different insurers to the customer and clearly lay down premium rates of different insurers. The MISP also cannot force you to buy a particular policy. Only after obtaining your consent can the MISP issue the policy to you, which has to be subsequently made available in electronic form.

So, here on, you can pay attention to the nitty-gritties in motor policy that you need to understand before signing up. For instance, the insured’s declared value (IDV) is the highest sum that your insurer is liable to pay to you at the time of claims. Similarly, not many of us are aware of a ‘zero depreciation cover’ that offers comprehensive coverage without factoring in for depreciation.

Benefits in the long run

One of the key issues in the past has been the opaqueness in the payouts made to auto dealers by the insurers for soliciting insurance policies. This in effect led to a lot of misselling of policies at the dealer end. If MISP is implemented in spirit across the board, it is bound to improve transparency.

The MISP guideline lays down the maximum distribution fees that can be paid to the MISP. This apart, the Act, prohibits the MISP from receiving any other fees or payments other than distribution fees.

As compliance of the guidelines picks pace, the cap on distribution fees, that implies cost savings to the insurer, will ultimately get passed on to you as a customer. You could see premium rates come down (on own damage), easing up your pocket.

All in all, while the MISP Act promises good tidings for you, the ‘buyer beware’ caveat still prevails. Don’t get carried away by promises of cheap policies and frills.

(The article first appeared in The Hindu BusinessLine.)