The absence of any representative to voice the views of motor insurance policy-holders in a committee set up by IRDAI to bring clarity and transparency in payouts made to auto dealers is unfair, say industry experts.
The government-owned non-life insurer United India Insurance Company Ltd proposes to appeal against allegations by the Directorate General of Central Excise Intelligence that Cenvat credit on policies sold by car dealers was wrongly claimed, said a top company official.
The Insurance Regulatory and Development Authority of India (IRDAI) recently announced formation of a seven-member committee to bring clarity and transparency in payouts made to automobile dealers by insurers for getting motor insurance business.
Apart from officers of IRDAI, the committee comprises representatives of private and public sector non-life insurance companies and a representative of an insurance broking entity belonging to car makers Maurti and Hyundai.
"While acknowledging that the primary aim of creating IRDAI is 'protection of the interests of policy-holders', having representatives of motor policy-holders on the committee would have ensured some fairness," K.K. Srinivasan, a former IRDAI member, told IANS.
"Every year, the motor insurance premium goes up and policy-holders are made to pay more. We don't have any voice anywhere," V. Nitya, a two-wheeler owner, told IANS.
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"The wisdom of forming such a committee at this juncture when another limb of the government -- the Directorate General of Central Excise Intelligence wing -- is investigating the matter is questionable," Srinivasan added.
However, some industry officials do not agree that the committee is a fallout of the investigation by the tax officials and to legalise the excess payments made to car dealers when it is not able to penalise the parties involved.
The Chennai Zonal Unit of the Finance Ministry's Directorate General of Central Excise Intelligence in August 2015 had issued summons to 16 general insurers for wrongly availing Cenvat credit to the tune of Rs.1,200-2,500 crore on bogus invoices of car dealers.
Industry officials said such an investigation is being done in other regions as well by the central excise tax intelligence wing.
According to the Finance Ministry, car makers enter into pacts with specific insurance companies.
Their car dealers are told to sell policies of only the preferred insurers. This fetches a commission of 2-3 percent for manufacturers and 15-45 percent for the dealers.
The tax officials alleged that there were several other discrepancies as well. First, the maximum brokerage or commission that is payable on motor insurance policies is capped at 10 percent. To circumvent that, insurers ask the dealers to inflate invoices to show they have provided services like advertisement and computer renting.
"Such invoices are not allowed under Cenvat Credit Rules, 2004, and the Service Tax Rules, 1994, to claim the credit," a senior official involved in the matter said, requesting anonymity.
"As these services were never provided by the car dealers, their invoices are not permissible documents under the Cenvat Credit Rules, 2004, and the Service Tax Rules, 1994, for availing Cenvat credit by the insurance companies. These facts have been confirmed by the employees of the insurance companies and the car dealers in their voluntary statements," the Finance Ministry said in August.
"The dealers do provide us a variety of services, like issuance of policies per se and collecting the survey reports. All these involve some charges," a senior official of one of the 16 insurance companies being probed told IANS, preferring anonymity.
He said the expenses claimed by the car dealers were reimbursed against their service tax registration.
"We go by the dealer's statement. There is no web portal where insurers can check if the dealer has remitted the service tax," he said.
According to him, all the car makers have signed up agreements with one or the other general insurance company.
"The annual premium from Maruti car dealers alone will be around Rs.3,000 crore. The business from auto dealers is a big segment," a senior industry official told IANS.
According to a senior official of the United India Insurance Company, business from automobile dealer channel is profitable.
"While there are 'synergies' in motor dealers functioning as insurance intermediaries, there are 'conflicts of interest' also. Very often 'synergy' and 'conflicts of interest' are two sides of the same coin," Srinivasan said.
While motor dealers earn commission (for procuring insurance business) as insurance intermediaries from insurance companies, they also receive claim payments on behalf of policy holders for accident repairs done to insured cars. The stakes are thus very substantial, according to Srinivasan.
He said the formation of a committee by IRDAI to study payouts by insurers to motor dealers might be indicative of the perception that there were issues in the payouts.
"We have received a show cause notice. We will be appealing against the issuance of the notice to us. The amount involved is not much in our case; it is around Rs.11 crore," Milind Kharat, chairman-cum-managing director of United India Insurance, told IANS.
He said investigation by the tax officials and the setting up of the committee by IRDAI were not inter-linked.
A senior official in a government-owned company said the IRDAI committee might recommend sub-limits on the payments made to automobile dealiers under various heads.
(Venkatachari Jagannathan can be contacted at v.jagannathan@ians.in)