Maruti re-enters vehicle insurance with its new company

In 2002, Maruti Suzuki entered the business of selling motor insurance under the Maruti Insurance brand which was debarred by the Insurance Regulatory and Development Authority (IRDA) in March 2010 from selling vehicle insurance policies. The reason of discontinuation was that the company had allegedly violated foreign investment norms which restricted the foreign companies from holding more than 26% stakes in an insurance venture. After two years, the Indian subsidiary Maruti Suzuki India Ltd. of the Japanese auto giant Suzuki Motor Corp has decided to re-enter the insurance broking business. The new company has been named Maruti Inusrance Broking Pvt. Ltd. and will be led by the current Managing Executive – Sales and Marketing of Maruti Suzuki India, Mr. Mayank Pareek.

According to Mr. Pareek a brand new company with separate infrastructure has been formed that will stick to the guidelines set by the industry regulator. It remains unclear whether this broking unit of Maruti will sell only vehicle insurance policy. It was reported that before getting discontinued Maruti had sold at least 2.5 million policies in the fiscal 2010. The insurance regulator had banned the company in response to the allegations by the local insurers that the Maruti service stations were inflating bills which in turn pushed their losses. According to a Maruti spokesperson, in 2002 when the company entered the insurance business, the norms for insurance brokers were still being formulated. As the norms were formulated by IRDA, Maruti was asked to change its status as the company has tie-ups with other insurance companies.

It was impossible for Maruti to hold 74% stakes in the insurance company as the parent company Suzuki held 55% stakes in the JV. Before the company lost its license, it acted as an agent for general insurance firms like National Insurance Co. Ltd., New India Assurance Co. Ltd., Allianz General Insurance Co. Ltd. and Iffco-Tokio General Insurance Co. Ltd. The total annual insurance market in India is around Rs. 18,000 crore and Maruti India alone contributes around Rs. 1,800 crore to this. When an insurance claim is generated, the authorized dealers service the cars and get in touch with the insurance company for claiming the money. The only role of the car owner is to pay the differential amount after the insurer’s contribution in the overall expenditure.

Earlier insurance agents from different companies used to call customers with due premiums but Maruti changed the entire process when it entered this business. Maruti collected all the insurance firms and started selling their policies which in turn reduced the involvement of insurance agents and the dealers started getting the commission which was earlier pocketed by the insurance agents. The dealers in turn gave Maruti a small portion of the earned commission which was about 4-6% of the total cost of the insurance. Normally the insurance accounts to 0.5% of the price of the car.