Banks need to be mandated to become brokers: Reliance Life

Only then will there be an open architecture in bancassurance, the insurance company says

Reliance Life Insurance is of the view that only when banks are mandated to become insurance brokers will there be an open architecture in bancassurance.

Anup Rau, chief executive officer, Reliance Life Insurance, said while both the Reserve Bank of India (RBI) and Insurance Regulatory and Development Authority of India (IRDAI) have made enabling regulations for banks to become insurance brokers, they need to be asked to sell multiple insurers' products compulsorily to boost insurance penetration.

The company, in a presentation, said public sector banks with 400 million accounts have an insurance penetration of just over one per cent. It added increase of penetration in the public sector banks alone to 15 per cent, can add 50 million customers and generate additional Rs 60,000 crores in life insurance premium in the next five years.

Reliance Life does not have a bank partner to sell its products and solely depends on the agency force and the direct marketing channel to sell its products.

The RBI had recently brought out enabling regulations for banks to become insurance brokers.

As per these norms, a bank can enter insurance broking only if their capital-to-risk (weighted) assets ratio is 10 per cent and above and their level of net non-performing assets is three per cent or below. The RBI said the net worth of the bank should not be less than Rs 1,000 crores.

Kazuhide Toda, general manager, Asia Pacific and chairman, NLI International Asia Pte, Nippon Life Insurance said since India is an important market for the company, opening up the bancassurance channel with further growth opportunities for the industry. Nippon Life is the joint venture partner of Reliance Life Insurance. He said the per capital premium in India is $41 compared to $3,346 in Japan.

The bancassurance market size was Rs 9,500 crores in FY14 (individual segment) and is likely to show significant ULIP-driven growth in FY15. "The customer choice of insurance service provider is restricted to one despite presence of 24 life insurers," said Rau.

As per the insurance ordinance, both corporate agents and brokers are now insurance intermediaries. The previous definition included only brokers with corporate agents defined as "agents".

The ordinance makes it possible for banks, as corporate agents, to sell products of multiple insurers without having to become brokers, subject to enabling guidelines being notified by Irdai.

The biggest challenge, that could be dissuading banks from going into the broker route, was that there are joint venture agreements with partners in insurance companies. However. he added once one or few banks decide to join the broking route, others would follow.