Insurers, banks oppose mandatory cap on business from one insurer

Irdai has said no corporate agent can get more than 90% business from one insurer in life, non-life or health in their first year of operation

Banks and insurance companies with a strong bank partner or promoter have opposed the Insurance Regulatory and Development Authority of India (Irdai) cap on business from insurers in the life, non-life and standalone health categories. Irdai, in its exposure draft on licensing, has said no corporate agent can receive more than 90 per cent business from one insurer in life, non-life or health in its first year of operation.

A senior industry source said even if caps were imposed, they should not be less than 80-85 per cent. “Several foreign partners have entered the Indian market through joint ventures only because of the prospects of distribution offered by the bank partner. Taking that away in an abrupt manner will impact the business,” said the chief executive of a major life insurance company.

Due to the new draft, exclusive tie-ups between banks and insurance companies as corporate agents would be a thing of the past with the regulator imposing a cap on the maximum business a bank can receive from one insurer. The insurance regulator has now allowed banks to tie up with a maximum of three insurers each from the life, general and health segments.

According to current rules, corporate agents like banks and non-banking finance companies are allowed to tie up with only one life insurer, one non-life insurer and one standalone health insurer.

Furthermore, the insurance regulator has mandated that not more than 75 per cent of the premium shall be placed with any one insurer in the second year and not more than 60 per cent of the premium can be placed with any one insurer in the third year of operations. From the fourth year, no corporate agent shall place more than 50 per cent of its business with any one insurer.

The chief distribution officer of a bank-promoted insurer said the real trouble would arise from the fourth year. “The USP of many companies comes from the bank through which they conduct most of their  business. We have requested Irdai to consider such companies before taking a final call," he said.

Banks are not comfortable with caps (ceilings). This issue has been discussed threadbare under the aegis of the Indian Banks'  Association. Top bank executive said banks were handling the bancassurance business for over a decade now. Any ceiling will only limit the choice for customers.

The chief executive of a life insurer with a large bank partner explained that while open architecture in insurance would be beneficial, banks could not be forced to tie up with more than one insurer in each category since their business models would differ.

Irdai has said the registration of a corporate agent who fails to comply with these norms will be suspended or cancelled. All existing corporate agents will have to register afresh once the new norms are finalised. This year the size of the bank-led insurance business market is set to cross Rs 10,000 crore on strong growth in unit-linked insurance. Here, the private banks reported stronger business than public sector banks.

Industry officials said some insurance joint ventures had been set up and foreign partners had come on board only on the basis of the fact that they would have a bank promoter or group bank to solely sell their products.