Bank broking arm to be independent accounting unit: Irda panel

The report said banks acting as brokers will not only enable them to utilize their entire network of branches but also increase insurance penetration

Banks wishing to become insurance brokers may have to segregate a broking arm, which would be an independent accountable unit.

The Insurance Regulatory and Development Authority (Irda) Committee of Insurance Broking,  in its report said that the bank broking unit shall have minimum 2 persons who have the requisite qualifications, mandatory theoretical and practical training and having passed the examinations there under by the examining body.

The report said that banks acting as brokers will not only enable the banks to utilize their entire network of branches but also increase the insurance penetration and pose an effective competition in rendering services to the policyholders.

"Since the banks are regulated separately by the Reserve Bank of India (RBI), it shall be a measure to enhance the efficiency in the conduct of procurement of insurance business and also accountability to the policyholder as compared to the agency channel," it said.

Since RBI had earlier expressed concerns about banks acting as brokers, Irda said that RBI position on Banks as broking firm also needs to be addressed being the primary regulator to Banks.

"The remaining staff of the bank broking unit shall meet with the training requirements specified under clause 12 of the code of conduct in addition to participating in relevant insurance seminars, workshops and continuing education programmes organized by the broking association and other stake holders in the insurance sector," said the report.

Irda added that the bank shall have board approved policy to address the issues, if any, with regard to conflict of interest between the bank and its clients receiving the banking services vis-a-vis insurance broking services. The said policy would have to be filed with the Authority at the time of seeking insurance broking license and the revised policy at the time of renewal.

It said that the banks registered/ licensed by the RBI may be recognized as a person to act as Direct Insurance Broker and be regulated by Irda for their activities and functions specified in Irda Insurance Broking Regulation. The report said that one corporate bank shall be entitled only broking license.

The banks will have to keep the following minimum deposit with Irda‘s lien, namely  Direct broker to keep Rs 50 lakhs, Reinsurance broker to keep Rs 2 crore and Composite broker to keep Rs 2.5 crore.  

As per the report, banks need not have additional capital requirements meant for direct brokers, but has to maintain an FD, for the purposes of running the affairs of insurance broking business.

"The bank may not be required to receive a separate FDI in its books for the purposes of insurance broking functions," Irda said.

These banks, engaged in the insurance broking may be required to furnish an internal audit report on the performance of their insurance broking business annually from a CA or a professional body different than the one that audits the bank‘s non-broking banking operations.

Among the other issues related to broking business, the report said that the annual fees to be reduced to 0.40% of preceding year revenue. Further, the ceiling on business from single client is proposed to be increased to flat 50% for any single Group for all time and Business emanating from Government body or PSU is excluded from this provision.

In terms of the requirement of capital, the report has proposed a new clause on transfer of ownership. It has said that the capital should not be pledged and for effective ownership and control of the Shares must rest with the entity / individual approved by the Authority.

Irda has also proposed for life insurance business an additional bonus commission of 5% of the first year new business premium earned. In case the broker‘s license is cancelled, then he can apply for a fresh license only after one year from date of cancellation.