Mandatory KYC leads to 30-50% dip in demand for motor insurance from agents

Mandatory KYC leads to 30-50% dip in demand for motor insurance from agents

Sunil Kumar Singh from Varanasi has been working in the insurance sector as an agent for the past three decades. Prior to 2023, Kumar used to do an average of 20 motor insurance policies a day, but that came down to 12-13 a day after the Insurance Regulatory and Development Authority of India (IRDAI) made Know-Your-Customer (KYC) norms mandatory from January 1. This was made applicable for the purchase of all new insurance policies, irrespective of their premiums.

Singh and his family offer the services of several insurance companies, including New India Assurance, Future Generali, Shriram General Insurance, ICICI Lombard, Bajaj Allianz and Iffco Tokio. According to him, there is a similar rate of reduction in motor insurance offered by his family members too. This is not the case with Singh--several insurance agents and a section of the companies that Business Standard spoke to indicated that after KYC documents were made mandatory for buying new health, motor, travel, and home insurance policies from January 1, the industry is seeing a massive drop in demand for small premium policies like the motor insurance segment by at least 30-50 per cent, specially in rural India. On the other hand, aggregators like PolicyBazaar are seeing  a massive increase of about 25 per cent in the motor segment, in a sign that business is moving to the online mode. Companies such as Bajaj Allianz General Insurance too are welcoming the move, calling it a long-pending demand of the insurance industry.

“Not just motor, we are seeing a similar dip in all the small-premium policies after the rules were made mandatory. For small-premium policies, this is not just delaying the time, but is also taking a huge share of our business. In motor insurance, we are seeing a 50 per cent dip in business, where the buyer’s details are already being collected at the time of buying the vehicle,” said a senior executive from a general insurance company, requesting anonymity.  Before January, KYC documents weren't mandatory for buying non-life or general insurance policies, including health, auto, and travel insurance. Under the new guidelines, submission of PAN or Form 60 has been made mandatory. Agents indicate that in most cases, it is the non-availability of PAN in rural areas that is derailing the process, while reluctance to share Aadhaar details is also responsible.  

“For small insurance policies, specially motor and for mainly for two-wheelers, we're seeing a 30-50 per cent dip in demand,” said R Sundararajan, president, Tamil Nadu General Insurance Agents Association.

“On the physical channels for two-wheeler policies, since it is a low-commission product, agents may not be interested and hence the two-wheeler market has gone down. We have actually seen a surge in traffic and in people wanting the product. There are some changes that push people online. This is one of them. For us, the surge of motor insurance was anywhere between 25-27 per cent in the motor segment in January. All our general insurance products are seeing a surge,” said Tarun Mathur, chief business officer-general insurance, PolicyBazaar.

Motor remains the largest line of business in general insurance, with gross underwritten premium of about Rs 68,951 crore (as on 2020), growing at 7 per cent. According to data available with the Insurance Information Bureau of India, six states (Maharashtra, Tamil Nadu, Uttar Pradesh, Karnataka, Gujarat and Kerala) contribute nearly 50 per cent of all policies and claims. However, uninsured vehicles remain an area of grave concern in India, with 57 per cent of such vehicles on road. This is similar to the previous year, with 17 states reporting over 50 per cent uninsured vehicles. This is why some companies say that in an under-penetrated segment, KYC for motor insurance is not required.

“We did not see any specific drop in the motor insurance business as a result of this KYC compliance mandate. However, we understand that in the initial few weeks, there have been some teething issues due to system integration across insurers and distributors. We believe the insurance industry will enthusiastically embrace KYC compliance as it is beneficial in the long term,” said Ramandeep Singh Sahni, Chief Financial Officer, Bajaj Allianz General Insurance.

Sahni added that nothing has changed from the business point of view for Bajaj Allianz General Insurance. However, some customers do seek the reason for carrying out KYC now, when earlier it was not mandatory at the onboarding stage. “KYC was always mandatory for life insurance at the onboarding stage. This is a new requirement for standalone health and general insurance companies, wherein KYC was done predominantly at the claims pay-out stage. This is a very commendable step by the Irdai, especially with the anti-money laundering processes being adopted across the financial industry. Hence, there is no reason why the same should not be extended to general insurance, which also forms an integral part of our financial system,” he added.