You May Soon Buy Motor Insurance via Bima Sugam When Buying a New Car; Dealers Can't Deny Cashless Repairs

IRDAI Proposes Changes to Motor Insurance Buying

Buying motor insurance through a car dealer could become less restrictive if the latest proposals from the Insurance Regulatory and Development Authority of India (IRDAI) are implemented.

The regulator has proposed allowing motor insurance policies to be offered through Market Infrastructure Institution (MII) platforms such as Bima Sugam, giving customers another way to compare and purchase policies when buying a new vehicle.

The proposals are part of IRDAI's broader plan to reform insurance distribution and reduce practices that can limit consumer choice.

New-Car Buyers Could Get a Digital Insurance Option

Under the proposed framework, customers buying new or existing vehicles could be offered motor insurance through digital platforms.

For new vehicle purchases, dealers would be required to prominently display information about the digital option, including a QR code that could direct customers to the relevant platform.

This would allow buyers to explore policies from participating insurers rather than relying only on the insurance option presented by the dealer.

Bima Sugam Could Become an Alternative to Dealer-Sold Insurance

Bima Sugam is being developed as a digital insurance marketplace designed to bring insurers, intermediaries and customers onto a common platform.

IRDAI Chairman Ajay Seth had earlier said that motor, health and term insurance were among the products being prioritised for the platform.

The latest distribution proposals would further strengthen the role of digital platforms in allowing customers to actively choose insurance rather than simply accepting a policy arranged through a traditional sales channel.

Dealers May Not Be Able to Deny Cashless Repairs

One of the most important proposed changes concerns cashless repair facilities.

Under the proposal, if a customer chooses to purchase motor insurance through a platform other than the dealer, the dealer would not be allowed to deny the customer access to cashless repair facilities solely for that reason.

This could give vehicle owners greater freedom to choose their insurer without worrying that purchasing a policy independently could affect their access to cashless repairs.

New Framework Proposed for Motor Insurance Dealers

IRDAI has also proposed changes to the way motor vehicle dealers participate in insurance distribution.

Dealers that meet the requirements for an Insurance Distribution Entity (IDE) could register under the proposed framework and distribute products from multiple insurers.

Other dealers could work as a Point of Sales Person (PoSP) through an eligible IDE or be associated with a single insurer, depending on the applicable structure.

Why Is IRDAI Proposing These Changes?

The proposals come amid concerns over the increasing cost of insurance distribution and commissions.

According to the IRDAI-related data reported in the proposals, motor insurance premiums increased significantly between FY2023 and FY2025, while commissions rose at a much faster pace. Average motor insurance commission was reported at around 24% in FY2025.

For new vehicles, average commission levels were reported at around 27% for OEM brokers and about 38% for Motor Insurance Service Providers (MISPs).

IRDAI's wider distribution-reform proposals are aimed at recalibrating distribution costs, improving transparency and creating more consumer-focused ways of purchasing insurance.

What Could Change for Car Buyers?

If the proposals are implemented, new-car buyers could see several changes:

• More freedom to compare motor insurance policies.

• Digital purchase options through platforms such as Bima Sugam.

• Greater transparency about available insurance choices.

• Less dependence on the dealer for purchasing insurance.

• Protection against denial of cashless repairs merely because the policy was purchased elsewhere.

• Potentially greater competition among insurers and distributors.

However, the actual impact will depend on the final regulations and how insurers, dealers and digital platforms implement them.

What About Third-Party Motor Insurance?

IRDAI has also proposed changes relating to commissions on mandatory third-party motor insurance.

The regulator has noted a sharp increase in commissions in this segment. According to the reported proposal, average commission rose from about 4.3% in FY2023 to around 22% in FY2025.

The broader objective is to bring greater discipline to insurance distribution costs while maintaining access to mandatory motor insurance.

Are These New Motor Insurance Rules Final?

No. These are IRDAI proposals and consultation measures, not final rules.

The regulator has invited comments and feedback from stakeholders before finalising the framework. Therefore, the exact requirements for dealers, insurers, digital platforms and policyholders could change before the proposals become effective.

What Should Car Buyers Do Now?

Until the proposed framework becomes final, customers should continue comparing motor insurance policies based on factors such as premium, coverage, deductibles, add-ons, insurer network, claim process and cashless garage availability.

If the new rules are eventually implemented, buyers may have an additional digital route through Bima Sugam while retaining access to applicable repair and insurance services.

Key Takeaways

IRDAI's proposed motor insurance reforms could change how customers purchase insurance when buying a new car. Digital platforms such as Bima Sugam could provide an alternative to dealer-arranged insurance, while dealers may be prevented from denying cashless repairs simply because the customer purchased insurance elsewhere.

However, these measures are currently proposals, so customers should wait for the final regulatory framework before assuming that the new rules are already in force.