New guidelines for banks doing insurance broking

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

The report of the Insurance Regulatory and Development Authority's committee on insurance broking says the bank broking unit shall have at least two persons with the requisite qualifications, mandatory theoretical and practical training and having passed the examinations required by the examining body.

It said, "The remaining staff shall meet with the training requirements specified under clause...of the code of conduct, in addition to participating in relevant insurance seminars, workshops and continuing education programmes organised by the broking association and other stakeholders in the insurance sector."

The report said banks acting as brokers would enable utilisation of the entire network of branches and increase insurance penetration, plus adding to competition in rendering services.

Since RBI had earlier expressed concern about banks acting as brokers, Irda says the RBI position needs to be addressed.

"Since 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.

The report says the bank shall have a board-approved policy to address issues with regard to conflict of interest between the bank and clients receiving banking services vis-a-vis insurance broking. The said policy would have to be filed with the Authority at the time of seeking an insurance broking license and the revised policy at the time of renewal.

It said banks registered/licensed by RBI could be recognised as an entity to act as a direct insurance broker and be regulated by Irda for their activities and functions specified in the Irda Insurance Broking Regulation.

Banks will have to keep the following minimum deposit with Irda's lien - a direct broker to keep Rs 50 lakh, a reinsurance broker to keep Rs 2 crore and a composite broker to keep Rs 2.5 crore.

Banks need not have the additional capital requirement meant for direct brokers but must maintain a fixed deposit for the purpose of running the broking business. Banks engaged in insurance broking might be required to furnish an internal audit report on the performance of their insurance broking business annually from a chartered accountant or professional body different than the one auditing the non-broking banking operations.

Among the other issues, the report said the annual fees should be reduced to 0.4 per cent of the preceding year's revenue. Further, the ceiling on business from a single client is proposed to be increased a flat 50 per cent for any single group. Business emanating from a government body or a public sector unit 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 the capital should not be pledged and effective ownership and control of the shares must rest with the entity/individual approved by the Authority. For the life insurance business, an additional bonus commission of five per cent of the first year's new business premium earned has been proposed.