🚨 A Regulatory Reckoning in the Motor Insurance Industry

🧭 1. The Root of the Issue: From Liberalization to Loopholes

In April 2023, IRDAI removed product-specific commission caps for insurers and replaced them with a 30% overall Expense of Management (EoM) ceiling. While this was aimed at promoting flexibility and innovation, it unintentionally led to a surge in commission-driven competition, especially in the motor own-damage segment.

Auto dealers, operating as Motor Insurance Service Providers (MISPs), have been central to this shift. Many began prioritizing insurers offering higher commissions — sometimes even demanding a share up to 57% of the premium for bundling insurance with vehicle purchases.

“This kind of channel-driven distortion doesn't enhance consumer value — it just shifts margin battles to the distribution end,” said a senior insurance strategist.

📊 2. Validated Commission Data: A Clear and Rising Trend

IRDAI's latest filings and business media reports reveal stark numbers:

These figures confirm that:

• Insurers are allocating an unsustainable share of premium income toward acquisition.

• The motor segment has become the most aggressive battleground for over-commissioning.

• Dealers have shifted power dynamics, prioritizing high-commission policies over consumer interest or long-term renewal value.

🌐 3. Global Comparison: Where India Lags

India’s absence of mandatory disclosure norms allows intermediaries like dealers to operate without accountability — a gap being exploited.

🧑‍💼 4. Industry Behavior: Ethics vs Expediency

A. High-Volume Acquirers

• Tie-ups with large dealer networks.

• Use price-padding to absorb commissions.

• Offer “pre-installed” insurance at the time of car sale.

B. Ethical Innovators

• Self-regulate commissions under 20%.

• Invest in digital channels (D2C apps, comparison platforms).

• Offer no-commission/low-commission product variants online.

🚦Emerging Divide: IRDAI’s future regulation is likely to favor the second group, particularly post the launch of Bima Sugam.

👁️‍🗨️ 5. Consumer Impact: High Cost, Low Transparency

• A customer buying a car worth ₹10 lakh might unknowingly pay ₹15,000–₹30,000 more due to bundled OD policy commissions.

• Mis-selling often occurs via pressure tactics:

  “Take our insurance or wait longer for delivery.”

• Add-ons are sometimes duplicated (e.g., engine protection already included in manufacturer warranty).

📉 Result: Less trust, more complaints, and rising dissatisfaction with the insurance-buying experience.

🏛️ 6. IRDAI's Strategic Intervention

Though IRDAI has avoided heavy-handed regulation for now, it has:

• Issued caution notices to insurers exceeding fair commission limits.

• Audited dealer-linked intermediaries (MISPs) with high commission payouts.

• Signaled willingness to impose sub-limits within the existing 30% EoM cap.

• Accelerated the rollout of Bima Sugam to introduce a level-playing field.

🧠 The regulator is following a "watch and warn" strategy — but enforcement isn’t far if self-regulation fails.

🔍 7. What's Next in 2025?

Key Inflection Points to Monitor:

• Will IRDAI mandate disclosure of commissions to end customers?

• Will Bima Sugam shift power to digital-first insurers?

• Will we see penalties imposed on OEM-insurer nexus practices?

• Can consumer education bridge the awareness gap?

✅ 8. Calls to Action (Tailored by Stakeholder)

For Consumers

• Always ask: “Is this insurance bundled? Can I choose my insurer?”

• Use aggregators or insurer websites to benchmark premiums.

• Compare policy details and claims track records — not just price.

For Insurers

• Cap OD commissions internally at sustainable levels.

• Publish product-wise commission bands voluntarily.

• Prepare for Bima Sugam by improving digital servicing infrastructure.

For IRDAI & Government

• Make commission disclosure mandatory at POS (similar to mutual funds).

• Set automated limits on dealer-linked intermediary payouts.

• Publish dealer-insurer tie-up reports to highlight risk concentration.

🧠 Final Thought: Reform or Regulation — The Window Is Closing

With commission payouts skyrocketing, insurer margins are compressing, customer costs are rising, and regulatory risk is escalating. The time to act is now — before the regulator has to bring down a hard gavel.

Transparency is no longer optional — it’s the only way forward.