Bancassurance issue: Life insurers move towards non-bank distributors

Insurers said that they are moving away from bancassurance due to it reaching a saturation point

Life insurance companies are looking to engage with non-bank distributors, in the backdrop of a lack of clarity on the delay in implementation of the bank-as-broker model and the need to expand their business.

Insurers, especially those not promoted by banks, are now looking to tie-up with other channels like large insurance brokers. They say they are moving away from bancassurance, not only due to the absence of clarity on the guidelines but also due to this channel reaching a saturation point.

Aegon Religare Life Insurance, for instance, will soon be tying up with larger brokers, with multiple lines of business and a dedicated customer base of their own, said Yateesh Srivastava, chief operating officer. “We are re-looking at our distribution strategy, wherein we will look at fewer partner with multiple lines of business, such as large brokers. Bancassurance as a channel is not opening up and the new broking guidelines are not clear,” he said.

The company will also focus on direct business to achieve 20-25 per cent growth in business in the current financial year, he added.

The finance ministry had in December 2013 sent a circular to the heads of public sector banks to also become insurance brokers. The idea was to boost insurance penetration by using banks' branch networks. Later, the insurance regulator also floated a proposal for all banks being mandated to become such brokers. At present, banks follow a corporate agent model, where they are allowed to tie-up with only one life, one non-life and one health insurer each.

This was followed by discussions between the regulators and bankers on this issue. Bank-promoted insurers were against the proposal; others were for it. While the finance ministry was ready to consider the differing views, the time for general elections came by and since then the bancassurance guidelines have been at a standstill. Finance Minister Arun Jaitley will have to take a stand on whether or not to mandate this.

As an insurance broker, a bank will be liable for each policy sold. Under the current bancassurance norms, the banks are not responsible for the policies sold.

Even companies that have tied up for bancassurance are looking at other modes of distribution. Edelweiss Tokio Life Insurance, which has a bancassurance tie-up with Catholic Syrian Bank, is also looking to leverage the existing customer network of its parent, Edelweiss Capital, said the insurer's managing director (MD), Deepak Mittal. Currently, 25 per cent of its sales come from Edelweiss Capital's customers and the remaining 75 per cent through the agency network.

The company has also tied up with some general insurance brokers. This will ensure better quality of business in terms of persistency, said Mittal. To improve persistency, the company is also looking to tie-up with banks for premium collection, apart from its bancassurance tie-up, he added.

At present, bank-promoted insurers have 55-60 per cent of their business from the bancassurance channel. If these banks become brokers, these insurers have to look towards other channels. Hence, sector officials said, they were already bracing themselves for the change.

One of the largest life insurers, HDFC Life, said the efforts to fortify and diversify the channel mix have started yielding results, with channels other than bancassurance contributing 30 per cent compared to the previous year's 28 per cent. Amitabh Chaudhry, MD & chief executive of HDFC Life, said they'd worked on fortifying existing relationships and opening newer channels.

"We want to grow other channels well and I believe the arbitrage to one bank selling products of one life insurance company might go away at some point," he said.

Even public sector bank-owned insurers are taking cautious steps. The chief executive of a large PSB-owned life insurer said it was clear the exclusivity of the bancassurance channel might not last for long. Hence, they'd been diversifying their business into agents and broking channels.

The life insurance industry has seen a 11.5 per cent rise in new premiums for FY14. Life insurers collected total premiums of Rs 119641 crore for FY14 compared to Rs 107235.44 crore in FY13.
TOWARDS FAIR WEATHER

• Delay in implementation of the bank-as-brokers model pushing insurance firms towards non-bank players
• Insurers now looking to tie-up with other channels like large insurance brokers
• Insurers also cite the bank-as-broker channel reaching a saturation point as reason behind latest move
• Under current bancassurance norms, the banks are not responsible for the policies sold