Irdai to pause on multiple tie-ups

Noting opposition from PSBs, regulator believes this isn't the time to push its draft proposal; however, exclusive arrangements to be discouraged

Following stiff resistance from public sector banks (PSBs), the  Insurance Regulatory and Development Authority of India (Irdai)’s open architecture model for the insurance sector is believed to have been put on hold.

According to sources, the regulator will not make the proposal of multiple bank–insurer tie-ups mandatory as proposed in the draft norms but will wait for a year or so, before nudging the lenders to adopt such a model.

Regulatory officials said the final norms will be announced in the next few weeks. “Due to opposition from banks, a middle approach is being formed. However, banks will be discouraged from having exclusive tie-ups, with tie-ups with multiple insurers in due course,” an official said.

Currently, banks are allowed to tie-up with only one life, one non-life and one standalone health insurance entity, as a corporate agent. If they had become brokers, they could have had multiple tie-ups, with the onus of any insurance policy sale on them. A bank-promoted insurer’s chief executive said this was the right way to move. “The present market is not ready for banks selling multiple products, both from a business viewpoint and from a personnel viewpoint, since bank employees might not be able to understand multiple products,” he said.

The official added that bank branches do not have the infrastructure to accommodate two to three officials from different insurance companies (each in life, non-life and health) to explain their products to its customers. “Unless there are enough trained people in banks to understand insurance, tying up with multiple insurers can be tricky,” he explained.

After studying the concern that there is not enough choice from banks for insurance customers and that some insurers did not have any bank partners, Irdai brought out a draft proposal that put a cap on maximum business from one insurer. This was fixed at 50 per cent from the fourth year onwards on business from one insurer, a move opposed by many banks.

In this draft, the regulator said an insurer can have tie-ups with up to three insurers — life, non-life or health. However, it removed any caps and did not make it compulsory for banks to tie-up with more than one insurance company in each segment.

Those insurers without bank partners, however, feel that unless the bank distribution system for selling insurance is opened, penetration of insurance will continue to be a challenge. “It is not possible to set up physical branches by insurers all across the country. Leveraging a bank branch would be the best way to reach out to customers in the remotest corners,” said the chief executive of an insurance company without bank promoters.  

In FY15, the bancassurance business for insurers with bank partners had increased. The sector gets 55-65 per cent of business from banks and those with bank promoters get more than half of their business from banks.