'Allow banks to have pacts with up to five insurers'

Insurance firms want bancassurance guidelines be revised

Insurance companies have suggested the bancassurance guidelines be revised to allow one bank to tie up with up to five insurance companies as a corporate agent. According to the existing regulations, a bank can only tie up with one life, one non-life and one health insurance company.

Industry sources said the proposal had been presented to the Life Insurance Council. The proposal states a separate section in the Corporate Agency Regulations for Bancassurance needs to be included, which will allow a bank to tie up with at least five insurers, with not more than 25 per cent share per insurer.  Sources added leading life insurance companies that do not have a bank tie-up have supported the recommendation. After this, the proposal will be put before the insurance regulator for approval.

The draft bancassurance guidelines of the Insurance Regulatory and Development Authority had proposed banks could act as brokers and sell multiple insurance products. Without an open architecture of bancassurance, insurers, especially newer ones, have limited options to tie up with banks.  Further, insurers said customers also have limited products to choose from, while buying a product from a bank channel.

There are other regulatory hurdles, too. RBI had said that banks assuming the role of insurance brokers could lead to a conflict of interests where the bank is also the promoter of an insurance company.

“Further, some provisions of the exposure draft, if implemented, may expose the banks to reputational risks,” RBI had said in an earlier Financial Stability Report.

However, permitting banks to act as insurance brokers to increase insurance penetration was one of the key reforms by Finance Minister P Chidambaram in his Budget speech. Here, he had said that the bank would be responsible for the products sold to the customer and to the policyholder.

Irda, however, has not yet taken a final decision on having an open architecture on bancassurance. Although this issue was discussed last week at Irda’s board meeting, senior Irda officials explained that the regulator was in the process of formulating the final guidelines on bancassurance. Further, the insurance regulator is also toying with the idea of giving multiple tie-up options to banks. Under this proposal, banks can tie up with insurers as a corporate agent, as a broker or as a corporate agent in one particular zone.

The Irda draft on bancassurance released in November 2011 had proposed a zonal system of bancassurance. Here, the insurance regulator had said that banks would be divided into three different zones and could tie up with two to three companies in each zone.

According to the premium collection data of Indian insurers, 70-75 per cent premium was generated from life insurers with bank partners in FY13.