Bancassurance norms may expose banks to reputational risks

The Reserve Bank of India on Friday said the draft guidelines on bancassurance, which were released by insurance regulator Insurance Regulatory and Development Authority (Irda), may expose banks to reputational risks.

According to Irda’s exposure draft in October, banks can sell insurance products by playing either a corporate agent or a broker to insurance firms. Corporate agents can sell insurance products for only one insurer. A broker can sell multiple companies’ products.

Those opting to be a broker will have to first withdraw from their existing bancassurance partnership.

However, the Reserve Bank of India (RBI) in its Financial Stability Report (FSR) said, “extant regulations do not permit banks to become insurance brokers” and “not permit banks to become insurance brokers. Banks assuming the role of insurance brokers may also lead to conflict of interests where the bank is also the promoter of an insurance company”.

It added that some provisions, if implemented, may expose the banks to reputational risks.

Atanu Sen, managing director and CEO of SBI Life Insurance, said, “RBI will take a call on appointing brokers for selling insurance products but at this point of time, I don’t think it will work out and they may tweak it a bit finally.” He added, “It is between regulators to decide and we need to wait for final guidelines.”