New Delhi: Maruti Suzuki India Ltd, the nation’s biggest car maker, is set to re-enter the insurance broking business with a licence from the regulator, about two years after it was barred from selling vehicle insurance policies.
The Indian unit of Japan’s Suzuki Motor Corp. has formed Maruti Insurance Broking Pvt. Ltd, which will be chaired by Mayank Pareek, managing executive officer (marketing and sales) at Maruti. Pareek confirmed the development.
Maruti had been selling motor insurance under the Maruti Insurance brand since 2002 until it was stopped by the Insurance Regulatory and Development Authority (Irda) in March 2010 for allegedly violating foreign investment norms. Local rules bar foreign companies from holding more than 26% in an insurance venture.
Second attempt: Maruti sold motor insurance under the Maruti Insurance brand from 2002 until it was stopped by Irda in March 2010 for allegedly violating foreign investment norms. Photo: Mint
Maruti will adhere to the guidelines set by the regulator and has set up a “separate company with separate infrastructure”, Pareek said.
Maruti had sold at least 2.5 million policies in fiscal 2010 before the regulator cancelled its licence. The ban came after local insurers alleged that Maruti service stations were inflating bills and pushing them into losses through hefty claims, Mint had reported in July 2010.
“Around 18 months back, in November 2010, we formed a joint venture company, Maruti Insurance Broking Pvt. Ltd, to take care of this growing insurance business,” the company spokesman said in an email response to a questionnaire sent on 29 March. “Irda accorded a broker licence to the JV (joint venture) company as per its guidelines, around two months back (February 2012).”
Maruti has since established partnerships with insurers to meet the guidelines set by the industry regulator.
“When we were starting the insurance business in 2002, the norms for insurance brokers were still being formulated. The company decided to venture into it under a corporate agency licence,” said another Maruti official, who did not want to be named. “With Irda formulating regulations for insurance brokers, we were asked to change our status as we had tie-ups with various insurance companies.”
With parent Suzuki Motor holding an at least 55% stake in Maruti, the latter will not be able to hold a 74% stake because of its overseas partner’s indirect holding.
“There is equity participation from other companies,” Pareek said, without disclosing details of the partnerships.
“It is a good thing for the company if they are able to circumvent the rules,” said Nikhil Deshpande, research analyst at Pinc Research, a Mumbai-based brokerage. “It’s a source of additional revenue without making any significant investment.”
Maruti declined to answer a question on whether its insurance broking unit will only sell vehicle insurance policies.
Prior to the cancellation of the licence, Maruti was acting as an agent for at least six 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.
“From the customer perspective, broadly there is no change and she will continue to get the seamless service across the full MSIL (Maruti Suzuki) network. At the same time, for her car, the customer will get a wider spectrum of insurance companies to select from,” the company said in the email response.
The motor insurance market in India is estimated at more than Rs18,000 crore a year, while premium collected on Maruti cars alone is about Rs1,800 crore a year.
In the event of insurance claims, the cars are serviced by the authorized service stations of car makers.
Normally, a 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.
Before Maruti started its insurance business, the agents of various insurance companies used to call customers whose premiums were due. Later Maruti decided to aggregate all insurance companies under one umbrella and its dealers started selling policies of these insurance firms, thus removing the involvement of insurance agents in the whole process.
“This way, whatever commission used to go to these brokers started going out to the dealers,” said a third official, who too declined to be named. “While a small portion of that commission was also being paid by the dealers to Maruti.”
Typically, the cost of car insurance is 0.5% of the price of a car, and Maruti dealers used to get about 4-6% of the cost of the insurance.
amrit.r@livemint.com
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