The insurance firm is offering the biggest discount on motor insurance premiums to boost its tiny market share; interestingly, motor dealers get a better deal than agents

Bharti Axa has opened up a new battle front in the competition for the motor insurance business. The company has tied up with car dealers to offer fantastic discounts on certain car models, based on its analysis of the claims, which has even surprised some agents.

Insurers are known to give discounts to secure business, depending on the type of customer and the health of the business in a particular segment and area. But this time, the difference in offers by different players is significantly higher, enough to set off a large shift in customers.

According to a customer who was looking to renew the insurance on her Honda City vehicle with ICICI Lombard, she was required to pay a premium of Rs8,138. However, when she inquired about the premiums for other insurers, she was told that Bharti AXA charged only Rs5,378, a good 34% less. Other companies are offering premiums between the higher number quoted by ICICI Lombard and the lowest amount by Bharti AXA.

Customarily, there has been some difference in premiums of different companies. But this has usually been a small difference; and if customers did ask, companies have been known to try to match the rivals offer. Also, the difference has not been so much as to spur customers to change the insurer.

Bharti AXA's annual premium is 1.26% of the depreciated insured declared value (IDV) of the car. In the US, the annual insurance premium is more than 10% of the current value of the vehicle.

When we asked for the best rate on offer from Bharti AXA for a Honda City, this dealer quoted a 45% discount. And when told that another dealer had offered 50% lower, he was willing to match the same. It seemed to be the lowest he could go.

This writer also called Bharti AXA direct for a quote and an agent returned the call promptly offering a 35% discount. But the amount listed for us a few minutes later worked out to a 40% discount. When told that a dealer was offering a 50% discount, the agent appeared surprised, and wondered how agents would sell similar insurance schemes in this scenario. Even after coaxing the agent to work out a final offer through his supervisor, he could not give more than 40%. It's possible that agents are not allowed as much as a discount as the dealers.

Motor insurance constitutes the biggest component of the general insurance business at 43.46%. It had a high claims ratio of 84.51% in 2009-10; but this was lower than the 88.84% in 2008-09.

KN Murali, head of motor insurance at Bharti AXA, says, "The premiums we set are based on adequate analysis on the data we have, the dynamics of the market, competitors and price sensitivity of the dealers. The data analysis shows trends for different cars in various geographies. North India produce higher losses, the East is most profitable, the West and the South are also profitable."

Asked about the pricing competitive advantage, Mr Murali said, "We are not using price as a strategy, but service as strategy. Our documentation is simple, we offer cashless and have in-house as well as independent surveyors." Bharti AXA says it sold over four lakh policies last year.

About the difference in the discount offered by dealers and the company's agents, Mr Murali explained, "We don't differentiate among the different channels for selling insurance.  We provide a discount grid to our intermediaries for different makes and geographies.  What we provide to our intermediaries is the maximum discount that can be offered-it is quite possible that some of the intermediaries can manage to operate at a lower discount than permitted to them by us.  We have taken IRDA approval to offer 50% discount and hence the dealers are within the limit to offer the same."

So, is the premium realistic, when three of the four PSU insurers are already in losses and private insurers are only just managing to keep their head above water? Or, are these companies trying to collect more business in the short term, in the hope that they can increase the premiums later when customers have forgotten about it, or that they may not want to go through the hassle of switching again?

According to an official at Arya Honda, authorised dealer for Honda vehicles, "Each insurance company gives us the authority to offer discounts on different models. In this case Bharti AXA allowed us to give up to 50% discount, apart from a no-claim bonus (NCB) of 45%. It has made a big difference with respect to the premium offered by the other insurance company (ICICI Lombard). But there are cases where customers do not switch even if there is a good difference in the offered rates. It depends from customer to customer."

One other Honda dealer said, "Insurance discounts are offered by companies based on the car model. ICICI Lombard does not give much discount for the Honda City ZX model. TATA AIG does not give a discount for cars that are older than five years. Even though the service levels (of the insurers) are similar, our preference order will be ICICI Lombard, Bajaj Allianz, TATA AIG, Future Generali and Bharti AXA."

Insurance brokers are an option for an unbiased view of products and companies when buying insurance.

ICICI Lombard says the discount or loading offered by insurers, over the erstwhile tariff rates, would be a function of their risk pricing model and their business objectives in terms of margin versus share.

Kartik Jain, head of marketing at ICICI Lombard, said, "After detariffication, insurance companies do their own risk assessment and offer pricing primarily based on the factors of the make, model and age of the vehicle, besides the location of RTO (road transport office) and no-claims bonus (NCB). Hence the price offered by different insurers for the same vehicle could be different."

About the 2.5% discount for renewals on the icicilombard website, Mr Jain said, "In line with the detariffing road map, we have filed our pricing approach with the IRDA. The discount for buying insurance online on www.icicilombard.com is from the savings in administrative costs and is a convenient service offered to all customers. The commission on the renewal transaction is not retained by us, but continues to be given to the active agent who originally sourced the policy."

Asked whether an insurer would offer a higher discount to new customers as an incentive to switch, Mr Jain said, "It depends on the insurance company's pricing approach, but ICICI Lombard offers the same premium for existing or new customers."

According to data with IRDA, Bharti AXA's gross premium underwritten jumped from Rs53.93 crore in the period from April to September 2009 to Rs174.89 crore in the corresponding six months in 2010. However, its market share is a mere 2.12%. All four PSUs (New India Assurance, National, United India and Oriental) are ahead of private insurers on market share. Bajaj Allianz tops the list of private players and is followed by ICICI Lombard. Reliance General, which used to be the top private motor insurer, is now at third spot. It has been losing market share in almost all the segments.

For those looking to buy insurance, it is essential to check the service details before buying a policy. An important feature is the cashless claim available through a large (over 2,000) number of network garages, free towing facility up to a certain limit, transfer of NCB, in-house surveyors and 24x7 customer care.

Also, when taking a policy for a new car, one should remember to transfer the no-claim bonus from the old car to the new vehicle as this will help to reduce the premium.

Comparative premiums can also be checked on various websites like apnapaisa.com, policybazaar.com and insurancepandit.com. While the rates may vary, the information helps to know what is on offer.

Apnapaisa.com has an exhaustive list of 13 motor insurance quotes, but it does not have the Bharti AXA figures for Honda City. Policybazaar.com displays seven quotes, but again does not have one for Bharti AXA. Insurancepandit.com shows only five insurer quotes, including for Bharti AXA, which is the lowest. But the Bharti AXA premium quoted on the website is more than the premium offered by dealers, which would be due to the specific discount that Bharti AXA is giving dealers.

Apnapaisa.com is a pure comparison site and, therefore, the low premium rate listed against TATA AIG may not be accurate as it is one of the sponsored results on the website. A question addressed to apnapaisa.com on this has not been answered yet. Policybazaar.com and Insurancepandit.com are broker websites through which one can even buy a policy for a new or existing car, online. Myinsuranceclub.com, paisawaisa.com did not list motor premiums online for the Honda City, but they can get insurance agents to contact a customer seeking information. — Raj Pradhan